Cost reduction is top priority for food industry

7th March 2009, 7:10am

Cost reduction is the top priority in 2009 for senior executives in the food and beverage industry according to a new report from advisory firm Deloitte.

31% of respondents have made cost reduction their number one issue this year as they face up to the challenges of the economic downturn.

94% of respondents believe the UK economy will deteriorate and whilst food and beverage executives are more positive than some other sectors, 48% believe the outlook for their industry will worsen. 

Lawrence Hutter, Global Head of Food and Beverage at Deloitte, said: "The economic downturn has presented food and beverage companies with new challenges. It is impacting how much money consumers spend but also the way in which they spend it. Footfall in discount grocers is rising and many shoppers are trading down. 

"That said the focus on good nutrition and health has not gone away. People are still spending money but their priorities are changing, with price and value increasingly central to the choices they make about where to shop and what to buy. We are, for example, seeing significant shifts away from eating out to eating at home, with consequent challenges in food service and opportunities in grocery." 

25% of respondents added that the profile of their target consumer was changing, while the same proportion said their customers were trading down. 

Notably, 83% of those surveyed expect to change the way they communicate their brand proposition to their target audience. 

2008 was a tumultuous year for the food and beverage sector with sharply rising food commodity prices dominating the agenda in the first half of the year. 73% of businesses in our survey reported substantial input cost rises during the previous 12 months. 

A quarter faced increases of between 11% and 25%. Tellingly, only 8% of respondents implemented price increases to match this rise, with 56% putting up their own prices by 10% or less. Just 37% of respondents passed on all cost increases to their customers. 

Hutter added: "With a range of input costs falling, many manufacturers are now seeing their retail customers ask for price reductions. Intense competition between UK grocers will ensure that commodity price falls are passed through to consumers. 

"However, UK food prices will probably be prevented from falling as much as in Eurozone economies because of the relative weakness of the pound and the importance of imports in the overall mix of what we consume. There will also be new opportunities for UK producers."

Related Articles:

• 04 Mar 2009 - Restaurant industry will return to growth in 2010
• 03 Mar 2009 - Contractors serve 1.62bn meals a year
• 02 Mar 2009 - Reputation beats price when dining out
• 20 Feb 2009 - Feeling the Pinch
• 20 Feb 2009 - The focus must shift to quality
• 18 Feb 2009 - Recession is not changing workers' attitudes

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