OC&C’s Food & Drink 150 analyses the financial statements of the top 150 British food and drink firms by revenue in conjunction with The Grocer.
Although average revenue increases were up slightly from 5.6% in 2012 to 5.8% in 2013, profit margins were unchanged compared to 2012, and near the all-time lows seen during the supermarket price wars of the early 1990s, the report said.
It blames the declining performance of the grocery retail sector; the UK’s top four supermarket chains have seen profit margins squeezed to just 4.4% last year, 0.1% down on 2012.
“Grocery retailers are continuing to put a lot of margin pressure on food and drink producers,” said partner at OC&C Will Hayllar. “But with producers’ margins at an all-time low, there is little scope to squeeze them any further, leaving producers under more pressure than ever before.”
Small and nimble
However, smaller brands were more resilient, with profit margins up 0.2%, to reach 8.5% last year. Overall, margins improved for 55% of the top 150 companies in the sector, and declined for 45%.
“The challenging operating conditions have meant smaller, nimble players have seen the biggest improvements in performance in this year’s rankings, showing that mobility is outstripping size in the current climate,” Hayllar said.
The report highlights the success of several smaller brands, which have managed to grow through product differentiation, rebranding, premiumisation, and entry into new categories.
Winning strategies
Among the most successful brands, OC&C highlights Haribo’s new seasonal ranges, tweaks to current products, and higher marketing spend – leading to a 0.5 percentage point increase in profit margin. Innocent is another success story in the spotlight, achieving a 19.2 percentage point increase in margins as it expanded into the juice market to make up for declining smoothie sales.
“Engaging consumers by providing genuine differentiation on products is proving hugely successful, with brands like Yeo Valley and Tyrrells great examples in this space,” Hayllar added.
“Brands are also reaping the benefits of rethinking their product, price and pack architecture to reflect changing shopper habits in different types of stores. Finally, developing in-house capabilities to react quickly to the changing grocer environment, such as infrastructure that allows for a more flexible supply chain, will also be essential as conditions continue to evolve.”