In 2022, we conducted an in-depth analysis of the key challenges facing the food industry at the time. Now, Laurence Frantzis revisits that topic, reflecting on the progress made over the past two years and examining the current landscape. He explores the most pressing threats and emerging opportunities shaping the industry today.
The food world in 2022
Our 2022 deep dive into the major trends shaping the food industry revealed a range of significant challenges.
Inflation was rising at unprecedented levels for many households. The ongoing impact of Covid further strained supply chains, while the effects of Brexit, particularly given the UK’s heavy reliance on food imports, compounded the situation. Brexit also contributed to a labour shortage, which, alongside other factors, fuelled rapid wage inflation in the sector.
The Russian invasion of Ukraine further disrupted global food prices, affecting key commodities critical to the UK food industry. At the same time, food manufacturers were grappling with rising energy and fuel costs driven by the conflict.
Tensions between FMCG manufacturers and grocers were intensifying. Manufacturers, hit with escalating costs, needed to raise prices, but grocers were focused on protecting consumers. The relationship became increasingly adversarial and unsustainable, though we observed a stalemate emerging – with grocers standing firm on essential items while offering some flexibility on premium goods.
Amidst these challenges, we noted some positive developments too. Brands began adapting recipes to reduce reliance on volatile, expensive ingredients, and consumers showed signs of accepting the reality of price increases, adjusting their shopping habits accordingly.
What’s happened since?
Two years on, many of the challenges highlighted in 2022 persist, forming systemic sector issues that won’t be resolved quickly or easily.
As Dino Kiriakopoulos, MD at AB Agri notes: “The effects of Brexit, Covid and the war in Ukraine have been significant in our markets. Certain markets remain fragile in the aftermath of these events, whilst others that are recovering are facing new challenges around sustainability, planning conditions and continued improvements in animal welfare. Continued innovation and investment in our food production is required if we are to have a sustainable, safe and secure model that moves to a more self sufficient British supply chain.’
As a result, the deflation many had hoped for has not materialised. Ian Toal, CEO of Oscar Mayer, emphasised this, saying: “Overall market conditions aren’t improving, and costs aren’t reducing.”
Between early 2022 and January 2024, the price of food and non-alcoholic beverages rose by 25%, compared to just a 9% increase in the entire decade preceding that. Food has become the primary driver of rising living costs, cited by 49% of adults in a 2024 ONS survey. Furthermore, 44% of adults reported buying less food due to increased prices.
While we are now entering a more stable period, with food inflation at its lowest point since 2021, it took significant effort and hardship to get here.
Helen Dickinson, BRC Chief Executive, highlights the industry’s proactive role: “During the height of the cost-of-living crisis, retailers invested heavily in improving their operations and supply chains to compensate for the impact of global shocks on input costs. This is clearly paying off.”
This sentiment is echoed by Ian Toal, who commented that “business turnaround is going well, in spite of the challenges. Being brave, agile and investing in our talent has been critical to our success.”
However, despite these positive developments, higher food prices are likely here to stay. Food is consuming a larger portion of household incomes than it has at any other point in recent history, prompting shifts in consumer behaviour.
What changes are we seeing In consumer behaviours?
As consumers reassess their food shopping habits in response to rising prices, several key trends have emerged.
One of the most notable shifts is the decline in customer loyalty. Increasingly, shoppers are moving away from their usual grocers in favour of shopping around for the best deals. James Bailey, Executive Director at Waitrose, has pointed out that customer loyalty has significantly diminished, with the number of retail brands shoppers purchase from each month “gradually creeping up.”
Cost-conscious supermarkets like Aldi and Lidl have been the primary beneficiaries of this trend, consistently attracting new demographics. A significant milestone has been reached as middle-class shoppers now make up the majority at these discount retailers, with over half of Aldi and Lidl’s spending coming from white-collar workers.
This shift goes beyond where consumers shop, it’s also about what they buy. Research from Which? shows that nearly half (46%) of consumers have purchased more own-brand products over the past year, driven by persistent food inflation. The proportion of more affluent shoppers switching to budget-friendly options has increased from 28% in April 2022 to 40% in April 2023.
As more middle-class shoppers embrace value and own-brand ranges, grocers are being forced to innovate and enhance the quality of these lines. Andrew Searle, Managing Director of Consumer at Alix Partners, notes: “As consumers switch from premium to discounters, the mass and cheaper ranges need to be better quality.”
For example, supermarkets have reported increased interest in premium ready meals, as consumers cut back on dining out. Lidl, meanwhile, highlighted the success of its own-brand luxury range, with an 11% increase in sales of premium own-label products in its Christmas 2023 range. Will the 2024 season see further growth?
Growing trends
- Shifting retailer / manufacturer dynamics: In 2022, we observed the early stages of a power struggle between manufacturers and grocers. Today, nearly all the experts we interviewed confirm that this battle continues, with power increasingly shifting toward retailers. Gareth Evans, Group People Director at AB Agri notes that “retailer power is growing, which is an ongoing problem for their customers who need cheaper supplies,” while Andrew Searle acknowledges that the relationship between manufacturers and retailers “continues to get more tense.”Chris Hayes, MD at Hilton Seafood, concurs, explaining that the value chain is fractured globally, as retailers prioritise maximising their margins. However, he emphasises that the solution lies in collaboration, stating, “businesses need to work with the retailers, not against them. Exceptional industry and product knowledge is the key to constructive discussions, which will help protect margins for all parties.”
- Growing use of consumer data: One of the most significant emerging trends is the increasing power and value of customer data within the sector. Grocers are becoming more sophisticated in leveraging the vast amounts of buying behaviour data they collect, and they are offering manufacturers greater access to these insights. This creates new opportunities for manufacturers to refine their strategies and reach consumers more effectively.Andrew Searle highlights that “manufacturers are paying for consumer data and buying ad space so they can feature prominently on e-commerce shopping sites and apps.” These spaces, both online and in-store, are part of rapidly growing retail media networks (RMNs).RMN ad capabilities, initially pioneered by companies like Amazon and Walmart, allow FMCG brands to engage with customers in more personalised ways, based on their past purchase patterns or real-time shopping behaviour. The potential is huge, with Tesco predicting that RMN advertising will surpass TV advertising by the end of 2025. Lee Roberts head of media sales, Tesco Media & Insights Platform, calls retail media a “rich creative canvas,” where data science is applied to generate insights that drive personalised marketing to the most relevant audiences.The effectiveness of RMNs is clear – 70% of advertisers report that retail media is performing as well or better than other channels, with Tesco Media currently delivering an average return on ad spend of £6.60, compared to £3.80 on other platforms. With $32.5bn spent on RMNs globally in Q2 2024 alone, is this something that’s about to really take off in the still embryonic UK market?
- Increasing threats to UK food security: One of the most pressing issues highlighted in the interviews is the growing threat climate change poses to the food sector and overall food security in the UK. Andrew Searle notes that “climate change is impacting crop yields, and access to the best arable lands is very difficult.” Similarly, Chris Hayes points out that for his business, “the biggest threat is climate change and rising ocean temperatures, which is massively impacting fish supply.”These concerns are reinforced by research from the Energy and Climate Intelligence Unit, published in December 2023, which identified significant risks to UK food security due to worsening climate conditions. The report revealed that five key food products, amounting to £8 billion in annual imports, are sourced from countries increasingly affected by droughts and floods.Additionally, Professor Chris Elliott, a leading food security expert, warns that food shortages are “alarmingly likely” in 2024, as climate change, transportation issues, and global conflicts continue to disrupt supplies.
- Lack of government preparedness: Amid all these challenges, the absence of a strategic government response is both surprising and alarming. The UK food supply is particularly vulnerable to external risks, given that 30% to 50% of the food consumed in the UK is imported. This heavy reliance on overseas imports, combined with just-in-time delivery systems and single-source suppliers, leaves the food industry especially exposed to disruptions from unforeseen events.Currently, we are witnessing multiple shocks occurring simultaneously, with few signs of improvement, yet there is minimal evidence of a coordinated government response or contingency planning.As Dino Kiriakopoulos points out: “Our government needs to develop a strategy around farming and food production before we enter a crisis.” Given the geopolitical landscape and the escalating effects of climate change, this lack of preparedness is highly concerning and it’s clear that the industry would like to see more action and prioritisation from Whitehall.
A challenging time
Food producers face an incredibly challenging and uncertain landscape. Many of the experts we interviewed noted that planning for the future is difficult, with a complex mix of political uncertainty, ongoing conflicts, and evolving trade arrangements.
On top of these external factors, the industry is also grappling with a talent challenge, with a pressing need to improve retention and invest in upskilling the workforce to remain competitive.
Collaboration will undoubtedly play an important role in overcoming these hurdles. As Chris Hayes points out, producers and retailers must work together to develop strategies that improve margins for all, rather than treating the relationship as a zero-sum game. The growth and impressive ROI of RMNs is a prime example of how both sides can benefit by working more closely together.
Additionally, the industry needs to find ways to bring government fully on board with tackling the issues, helping it to fully understand the severity of the situation. Indeed, a consistent, well-informed strategy from the top is essential to address the systemic challenges facing the food sector.
On a more positive note, inflation is starting to come under control, and consumers are adjusting to the new reality of food costs taking up more of their income. What’s more, their changing behaviours and priorities are creating new opportunities for manufacturers to innovate and adapt their offerings to meet evolving demand.
In 2022, we advised readers to “buckle up… it’s going to be a bumpy ride.” As we move Into 2025, despite the green shoots, it’s probably wise to stay buckled up for a little while longer.
Want to learn more about how we’ve supported leadership in the food sector to weather the lean years and be more efficient with their harvest? Get in touch.