Cost cutting strategies for companies in the F&B industry

Economic changes have greatly affected large manufacturers in the F&B industry in recent years.

The rising costs in food and beverage production has pressurised decision-makers to implement effective cost-saving strategies. This challenge is time sensitive, as many businesses need to secure long-term savings ahead of further economic uncertainty.

In this blog, we explore the main sources of pressure for larger food and beverage brands and how they can offset these rising costs to future-proof their business.

The food production industry has been fire-fighting for several years. Crisis after crisis has threatened the longevity of many F&B brands. Brexit and the COVID-19 pandemic were a couple of the early challenges with severe financial implications for any F&B company.

Brexit sent international supply chains into disarray. New trade regulations, procedures and customs requirements were put in place. Ultimately, this increased logistical and processing costs for many UK-based businesses in the F&B sector. This includes F&B businesses that import raw materials and ingredients from international suppliers or export their products to supply European retailers.

Compounded with this was the COVID-19 pandemic. This saw extreme levels of panic buying and subsequent product shortages throughout 2020. Supply chains were further pressured as national lockdowns, employee sickness, and travel limitations significantly reduced the manpower required to maintain normal food and beverage production levels.

Both of these obstacles have had a long-term impact on the operational efficiency of UK producers and manufacturers in the F&B sector. Both Brexit and the pandemic have resulted in a labour shortage within the food and beverage industry. According to The Week, 200,000 EU citizens that were working in the UK have now left due to Brexit, but an additional 450,000 people have left the UK workforce altogether. Overall, there are approximately 900,000 fewer people working than was forecasted by the Bank of England before COVID-19.¹ In fact, the vacancy rate within the food and drink manufacturing sector sat at 6.3% in Q2. This is considerably higher than the UK average of 4.3%.²

Food and beverage manufacturing companies have been further squeezed by an ongoing rise in food inflation and energy costs. Much of this has been attributed to the conflict between Russia and Ukraine. Raw ingredients, such as wheat, have been particularly affected as Ukraine is one of the largest exporters in the world. Rising energy costs for gas and oil have also contributed to the financial pressure that food product manufacturers are under. This is not expected to change anytime soon.

With increasing costs for F&B brands (including raw materials, labour and energy), decision-makers are desperate to mitigate the cost implications on the business. One way to offset these increased operational costs for food and beverage suppliers is to review the food product pricing with their retailers. However, as recent examples have shown, this may not be the best route to take.

Select retailers and food producers have been in dispute over product pricing recently. For example, in June this year, Tesco and Kraft Heinz were at odds regarding product pricing. Kraft Heinz, a food producer of kitchen cupboard staples such as ketchup and baked beans, has also been experiencing unavoidable high production costs. However, Tesco was unwilling to pass this additional uplift to the end consumer by reflecting it in the shelf price. This resulted in Kraft Heinz temporarily stopping the supply of their products, until the dispute was resolved.

With food prices rising for F&B brands and large retailers taking the PR high ground (shown above³), they burden larger F&B producers with managing and absorbing the inflated costs alone. Although large food products manufacturers could have the leverage to pressurise retailers to compromise on product pricing, there are other cost cutting strategies for companies in the food and beverage sector.

One approach to business cost saving for larger food and beverage manufacturers is digital transformation. While it is likely that most large F&B brands have automated processes in place, including an EDI solution, they could be running on a legacy model. This is not optimal for a couple of key reasons;

Businesses need to consider the cost implications of sticking with a legacy EDI system vs. the benefit of switching to a scalable and integrated cloud-based EDI solution. Selecting a new EDI solution which is implemented by an external SaaS provider takes away the hassle of in-house EDI software. The EDI provider handles the end-to-end onboarding, including setup, ongoing maintenance/updates, and data management compliance.

If your business is running on a legacy system, now is the perfect time to switch! With a cloud-based solution from Transalis, there are no hidden costs and no VAN charges. By entrusting us with the legwork, you avoid the costly overheads in maintaining an on-premise solution. We work with you to ensure there are no disruptions and you can run Business-As-Usual. Our dedicated team are on hand to help you select the best solution for your business needs, depending on the features, functions, and flexibility required. Scalable digital transformation with Transalis eDI means a future-proofed business.