The winds of change are strong in food and drink and at times it can feel like all these winds are headwinds! Simon Day, (Brand Founder, Investor and Advisor) looks at some of the key challenges in UK food and drink and where he believes the opportunities can still be found.

Focus returns to major supermarket chains

The struggles of rapid delivery have been well documented with falling sales and staff losses in the UK, whilst regular online grocery demand has suffered a less dramatic but nonetheless significant softening post-covid. Meanwhile the holy grail of large scale and profitable direct-to-consumer business, so often discussed whimsically in boardrooms, has proven unattainable for most food and drink brands.

So, the retail focus returns to the major supermarket chains, where national distribution and healthy rates of sale offer the biggest prizes. It may be tough to get a listing and tougher still to keep it, but the contact points are few, the requirements are generally clear and the demand relatively predictable and consistent. In a market like the UK where sales are relatively concentrated with a few big players, it really can make the targeting simpler and the growth steps bigger for food and drink brands.

Plant-based innovation challenge

Plant-based has been one of the booming categories in recent years but has hit some choppy waters with the category currently looking over-spaced for its sales. Expect retailers to look to rationalise brands and products that don’t offer a valued difference. However, I’m a big believer that there are always gaps if you look hard enough and that growth can come from surprising places – look at my own experience with Squeaky Bean Pastrami and Vivera Plant Shawarma Kebab as examples of unique lines that became staples and expanded the category.

Sectors like vegan cheese still lag meat and milk alternatives in terms of consumer satisfaction and are ripe for quality improvement, some of which will be technology-led but all of which must be delicious.

I look forward to the future innovation and development across plant-based that addresses gaps or really shifts quality to convert sceptical shoppers and get this category growing fast again.

In busy fixtures with loads of new challenger brand entrants like no/low and hard seltzers the competition will drive sales growth as it has done in plant-based. Perhaps if we all keep our expectations realistic as well as ambitious then growth will come on a firmer footing. Some winners will doubtless emerge and become power brands of the future.

Sustainability and diversity – do consumers care and how do we do more

We are often told that consumers care more than ever about sustainability and ethics, but business owners sometimes don’t see their investments reflected in the price or volume of their sales. B Corp has changed the conversation from the payback of individual CSR projects to the whole raison d’etre of the company. Whilst B Corp businesses still represent a small proportion of food and drink sales, they outperform the sector average, and we are increasingly seeing accreditations like this sway listing decisions. With large foodservice and retail businesses under pressure on sustainability themselves I expect them to more commonly pick suppliers who have done a lot of the heavy lifting on their behalf.

Sainsbury’s claims to have invested £1million in UK retail’s first incubator programme for Black-led businesses and I’ve seen evidence that other retailers are also starting to be proactive in this regard. There should be increased opportunity for businesses that address food and drink’s poor record in the diversity of its founders and investors. For those of us involved in the industry, let’s work to make sure this really comes to fruition.

The ’cost of living crisis’ effect

The biggest headwind of all is the ‘cost of living crisis’ and the associated rises in input costs. This is a time when consumers seek comfort and affordable luxury. Fortunately, food and drink is perhaps the sector best positioned to provide this.

In previous times of economic challenge the UK has also seen polarisation in the market, with premium grocery retailers performing strongly alongside the likes of Aldi/Lidl. The same has been true of tiers within a store – often the top tier food and drink that equates most closely to sacrificed eating out experiences has seen an upturn. Certainly price will be high on the agenda in the coming year, but it is not the be all and end all.

For new entrants to the market, know that incumbents are struggling to push (often unpopular) price increases through with their customers and this creates an opportunity to change the status quo. In my experience it is an environment that also suits the nimblest challengers, who can re-engineer prices through innovation and NPD rather than simply passing rising costs on.

Whilst these are challenging times, UK food and drink remains a hugely dynamic and exciting market and every change brings its opportunities if you know where to look!