Four food and drink industry surprises of 2015

Delivering a personal perspective on the past year, Wilkinson who chairs the National Skills Academy for Food & Drink, identified three other surprises. One of those was his miss-founded prediction of distress in the supply chain.

“My predictions for a food manufacturing sector in distress in 2015 proved well off course,” Wilkinson told business leaders at the forum. “In fact, overall profitability and margins have increased and the sector is in good shape.” Why, he asked, given the price war, savvy consumers and the general media’s apparent dislike of the sector?

“The reality is that I sense a shift in the power base between the retailers in favour of suppliers. Humbled by their dismal performance to compete with the emergence of the limited range discounters, the big four are no longer the purchasing moguls they were, and the average national account manager has a spring in his step as he enters the buyer’s office.

‘You need us more than we need you’

“There is a sense in the air of you need us more than we need you.”

Manufacturers had also benefited from lower commodity prices – relieving the need for price recovery. Also, as the benefits of hard-earned productivity showed through, margins held up well, he said.

“Premier Foods delighted us all with its return to health, even if it is was on the back of exceedingly good results from Mr Kipling. I’m not sure Gores will be pleased with the Hovis business that Premier got rid of.”

Food price deflation had also benefited manufacturers.

Delivering a personal perspective on the past year, Wilkinson identified three other surprises. Those were: an unexpected boost in production, mergers and acquisitions led by Nomad and Lotus and the return of David Cameron to Number 10 Downing Street.

The unexpected boost in production resulted in a world that was “awash” with too much of everything.

“The prophets of doom that thought the end is nigh with population growing faster than food production did not have a good year,” said Wilkinson.

“The agri sector took all this on board and planted more. Cereal use in biofuels subsided as fracking grew and the oil producers responded to lower prices by drilling even more. To put the cream on top, the good lord gave us perfect global weather for growing.”

The result was farm incomes under pressure – particularly in the dairy sector, which proved the wisdom of underpinning incomes by way of subsidy to smooth out earnings.

More rationalisation

“Maybe the agri sector needs more rationalisation to help it survive and flourish,” Wilkinson said.

The third surprise of the year was that mergers and acquisitions were led by Nomad and Lotus. “This time last year the former did not exist and Lotus has been hiding under a fig leaf until now.

“Nomad snapped up Birds Eye and Findus and are thinking big, while Lotus has splashed out even bigger multiples than Hain to buy Nakd and others. Mind you, Hain did its best to compete with the recent purchase of Orchard House . Ferrero look to have the steal of the year picking up Thorntons in the summer.”

Wilkinson was chairman of Thorntons at the time of the sale to Ferrero.

But overall, it was a relatively quiet year for mergers and acquisitions other than the blockbusters like Moy Park, with “lots of asset hoarding so far”, he said.

Surprise number four was the return of Cameron to Number 10 “against the odds” to start his renegotiation of the UK’s membership of the EU.

Wilkinson suggested environment secretary Liz Truss promised so much but lacked the wherewithal to deliver. “We await with baited breath the manifestation of her new vision for the Department for Environment, Food and Rural Affairs, which she leads and the 25-year plan for food and farming.

“Mind you, does not look like she will get much pain from Labour with a vegan in charge [Kerry McCarthy, shadow environment secretary] – strange world we live in.”