FDBusiness.com

Business leaders in the UK food and drink sector recognise a tough Christmas trading period lies ahead, according to the latest Confidence survey from the Food and Drink Federation (FDF),. In contrast to the last two quarters, optimism has waned in Q4 with the FDF measure turning negative for the first time since Q1 despite a strong Q3.

Over half of the survey’s respondents reported that their domestic sales had grown in Q3, with businesses benefiting from August’s good weather and the Olympic and Paralympic Games. Despite a drop in overall optimism due to rising costs and uncertainty about the economic outlook, respondents reported continued investment in new products, upskilling staff and in R&D.

The survey shows that domestic sales continued to grow in Q3 with 53% of survey respondents reporting growth compared to the previous quarter.

Exports were strong in H1 but showing signs of a slowdown with values down in July and August due to lower demand from Eurozone markets. Expectations are for exports to remain at current levels for Q4.

Ingredient prices continue to rise resulting in higher average costs for many respondents and higher factory gate prices for some. Over 80% of respondents expect commodity prices to rise even further in Q4, with potential to impact retail prices.

The food and drink industry continues to invest, particularly in R&D and in upskilling staff.

Though investment in R&D dropped back in Q3, it is expected to rise again in Q4 with a third of respondents planning to launch new lines in time for Christmas.

Training spend has remained important for businesses throughout 2012, with further increases anticipated by 33% of respondents in Q4. Capital Expenditure (CAPEX) fell to a negative balance of 7% as lenders tighten their purse strings and economic uncertainty reduces confidence to invest.

“The results of our latest survey show that food and drink business leaders are bracing themselves for what could potentially be one of the toughest Christmas trading periods in recent years,” says FDF’s Economic and Commercial Services Director, Steve Barnes. “Christmas is traditionally our busiest production period and when we would expect to see higher levels of demand in both our domestic and overseas markets. However, continued rises in ingredient prices and an uncertain economic outlook are impacting confidence and this volatility is making it harder for businesses to plan ahead. However our sector has always proved resilient and we are confident that it will continue to be so and make a significant contribution to the UK’s economic recovery.”