With a series of unprecedented events and challenges over the past few years, Food Manufacture is seeking the expertise of several leaders in the food and beverage industry to find out what’s in store for 2023.
The economic crisis, the war in Ukraine, energy costs, inflation, cost of living, consumer habits, and health concerns are all expected to be key trends in 2023. But one thing is for sure: it will be difficult to predict what might happen in 2023 with absolute certainty if the whirlwind of 2022 is anything to go by.
Who would have thought at the beginning of last year, when the UK was still in the grip of the pandemic, that parts of Europe would be at war, the UK would see three prime ministers take the helm, and the supply chain issues we thought were causing disruption were only a harbinger of more serious problems?
So, while it may be harder than usual to predict, here are 10 key trends that look set to impact the year ahead.
The global economy
The current global economic climate, which has been affected by the aftermath of the Ukraine-Russia war, has led to skyrocketing energy prices, food inflation, rising animal feed prices and a cost of living crisis.
Rupert Ashby, chief executive of the British Frozen Food Federation (BFFF), predicts that food producers and manufacturers will face a tough 2023. He cites not only energy prices, but also the high cost of ingredients combined with labor shortages that will continue to pose challenges for the industry.
“The government’s energy bill compensation scheme provides businesses with a welcome buffer to help cover energy costs in winter, and the results of their review of the scheme should be in soon. However, the Chancellor has made it clear that any ongoing relief will be smaller and only for certain qualifying businesses,” Ashby warned.
While Baker & Baker CEO John Lindsay says he expects inflationary pressures to continue through 2023, although he hopes the worst of the “economic headwinds” have passed and “stabilized”.
He continued: “The food industry has worked extremely hard to cope with the extraordinary supply chain disruptions caused by the war in Ukraine and COVID-19, and has demonstrated resilience and flexibility to ensure that food remains on the shelves.”
Food supply and security
The National Farmers’ Union (NFU) has already called on the UK government to support British food or face “sleepwalking” into a food crisis.
But there seems to be no quick fix to these widespread supply chain problems.
Tim Clarkson, cluster director of Dawn Foods in the UK and Ireland, believes that issues such as bird flu and the war in Ukraine continue to affect the supply of raw materials; as a result, food manufacturers are looking to mitigate these problems.
“We are looking for alternative ingredients that can be used without the need to change specifications or recipes, investing heavily in research and development to enable us to do this. This will continue for the foreseeable future,” he commented.
“Like other large manufacturers, Dawn has the advantage of being able to buy ingredients on a large scale if needed. We also have more inventory, which means that our supply chain and production will move efficiently in line with customer requirements.”
There is no doubt that 2023 will be a tough year. Food and beverage manufacturers are facing the challenges of potential strikes, rising input costs, as well as business failure and plant closures.
The Make UK/BDO Manufacturing Outlook for the fourth quarter has already shown that the food and beverage sector is projected to contract by -1.5% in 2023 due to the impact of the current economic crisis.
At the same time, Mark Lynch, partner at corporate finance house Oghma Partners, admits that some early-stage companies will find it difficult to survive and have a lower valuation due to the current situation.
“As an alternative, these companies may look at sales as an exit route, and we expect M&A to increase as a result of these more challenging conditions,” he explained.
Labor shortage
The industry remains at the mercy of the labor crisis. The Association of Manpower Suppliers says the government’s plans to hire domestic workers have been “ineffective”.
Although the UK government has confirmed that 45,000 seasonal worker visas will be available for businesses next year, it looks like the situation will remain challenging through 2023.
Allen argues that food production costs have risen sharply, energy costs have quadrupled, and most factories are 10-15% short of labor.
“They are only coping by shortening lines and using extra time. And while the skilled visa system allows processors to find workers from other countries, it is costly. For example, it costs approximately £12,000 to recruit one worker from the Philippines.
“Given the tight labor market in the UK, this seems to be the only way to mitigate the problem in the short term. We’d like to think we won’t see a repeat of the backlog on pig farms that caused so many problems earlier in the year.”
A changing consumer
The cost-of-living crisis has led to a dramatic change in buying habits as consumers have tightened their belts.
Soumya Nair, director of global consumer research at Kerry, told Food Manufacture that changes in buying and consumer behavior are accelerating faster than ever before.
“There is a clear desire to reprioritize their spending, but to focus on proactive health and nutrition, mindful shopping and sustainability, and an unwillingness to compromise on taste,” Nair said.
“We don’t expect a reduction in food and beverage spending, rather a reprioritization of the basket; with a shift in focus to home-use solutions that meet their nutritional, health and sustainability needs, without compromising on taste or breaking the bank.”
Paul Graham, managing director of Britvic and current president of the British Soft Drinks Association, argues that the industry must adapt.
“Consumers are price-conscious,” he said.
“As an industry, we have to continually adjust to the changing landscape we operate in and adapt to help customers still enjoy products and treat themselves from time to time, even if they are on a tight budget.”
BMPA’s Allen added that as the economy is under intense pressure and households are looking to cut costs, the trend to buy cheaper cuts of meat, such as minced meat, will continue in 2023.
“Meat production volumes are decreasing, but not by much. The issue is more about the cost of the product being sold. And when spending power is under pressure, consumers seem less inclined to indulge in unfamiliar products. They tend to stick with what they know, and of course they know and understand what meat can do,” he explained.
Ashby emphasized that during the pandemic, the frozen food market attracted approximately 400,000 customers, and he expects frozen food to remain a staple in many weekly stores.
While Lindsay believes that one of the biggest trends for food manufacturers will be to focus on truly delivering value.
Challenges outside the home
Rachel Dobson, managing director of Lynx Purchasing’s hospitality specialty purchasing, notes that uncertainty in the foodservice sector will continue to plague suppliers and manufacturers, especially in terms of demand forecasting.
“There are reports that many hospitality businesses are planning to limit opening hours in the new year due to higher operating costs such as energy bills and lower consumer spending, which in turn means they will reduce food and beverage orders,” she said.
“However, consumer sentiment can change quickly, and it may only take a warming in early spring or some good news on the economic front to see customers start to return to hospitality in significant numbers. At that point, food and beverage suppliers will need to adjust their supply chains to cope with a sudden surge in orders, which could impact both availability and price.”
Indulgence
Mike Bagshaw, founder of flavor specialist ITS, predicts that next year’s main market drivers will focus on “frugal taste” as well as plant-based consumption.
“Frugality will be a key market trend in 2023,” he said. “While the cost-of-living crisis means consumers will feel the pinch, I believe they will be happy to splash out on an indulgent treat if they think it’s beneficial.”
Lindsay agreed: “And despite economic difficulties, consumers will still look for moments of indulgence or treats. Bakery products are sold at a relatively low price point, so they are much more accessible to all shoppers.”
Innovations in flavors
While consumers’ wallets are being tightened, innovation is still going strong in the food and beverage sector. And Paola Bassi, marketing director for Europe at Synergy Flavors, says there will be more innovation, especially in the savoury segment.
“This may include the inclusion of distinct signature flavors; authentic milk flavors, alcohol profiles or umami or kokumi enhancers for favorite dishes,” Bassi predicted.
“The popularity of smoky flavors is likely to grow and evolve with roasted, black, Japanese barbecue, smoked seaweed and caramelized notes being just some examples of flavors we expect to see more of.”
She expects international cuisines and ingredients to continue to flourish, particularly spicy and complex flavors such as sansho peppers, habanero chiles, Sichuan peppers, rendang, sriracha and green thai.
Synergy believes that the beverage industry is seeing similar trends with a growing interest in savory drinks, often inspired by mixers, with ginger and chili flavors.
Meanwhile, Bagshaw predicts that classic flavors will remain popular.
“For those manufacturers who push the boundaries of flavor in 2023, red orange, light chocolate, jalapeno, and biscoff will be big news,” he commented.
Healthy products
Demand for healthy and functional food and beverages continues to grow.
Frank Jaksch, CEO of Ayana Bio, a plant cell company, says the biggest change in 2023 is a trend that has been growing since the start of the pandemic: “food as medicine”.
“We will see more people avoiding high sugar and sodium intake, while seeking preventative and healthful foods that contain natural plant-based ingredients that support stress, sleep, healthy aging, immune function, and brain health,” he predicts.
“People tend to look for prevention and self-medicate during times of economic instability (for example, the nutritional supplement market surged during the 2008 housing crisis and during the Covid-19 pandemic). Expect this trend to repeat itself in 2023”
Sustainability
Despite the challenges of 2023, sustainability will remain high on the agenda.
“The main challenge for food producers is to champion environmental sourcing as well as reducing costs,” said Bagshaw.
Lindsey agrees, adding: “There is a widespread understanding in the food and drink industry that decarbonization and emissions reduction are critical – both to reduce our environmental impact and as the only way to do business in the coming decades.
“The provenance and sustainable qualities of raw materials are an increasingly important factor for buyers, especially ingredients such as palm oil and cocoa”
While Graham emphasizes the introduction of the DRS scheme in Scotland in August 2023, which aims to tackle the issue of beverage bottles and recycling.
“Producer fees are causing additional costs that just don’t seem acceptable right now,” he argued. “We’ve come a long way and the whole industry wants the DRS to succeed and it will be tested when it comes into force next August, but the government can use the experience of Scotland to embrace and apply it to the UK. -widespread DRS as soon as possible”
In the meantime, Allen of the BMPA wishes that in 2023 all industry organizations in this country would come together to agree on a plan.
“Here in the UK, all of our key players: the levy boards, the insurance bodies and the big farming organizations are working in isolation. Unless we achieve greater cooperation and cohesion, I fear we will fall further behind other countries and the UK food and farming industry will pay the price,” he concluded.