Demand for alternatives driving growth in food and drink sector

Consumer demand for alternative food and drink is driving growth in this sector, says an advisory firm.

According to accountancy and business advisory firm BDO LLP,  the UK food and drink market saw a “prosperous” return owing to a slew of M&A activity which was up by 20 percent in 2021 – only 10 percent lower than pre-pandemic levels. 

The BDO Food & Drink Manufacturing Review 2022 has revealed that deals increased in plant-based, free-from, low sugar and alcohol alternative sub sectors during the last 12 months. This included the cross-border acquisition of vegan and free-from brand Gosh! by Portugal-based Sonae for £64 million.

Roger Buckley, M&A partner at BDO, said that the rise in M&A activity in 2021 can be attributed to a number of factors, including improving market sentiment, strategic positioning, pent-up demand following an uncertain year, and also rumoured changes to capital gains tax, driving deal completions.

“Whilst plant-based, free-from and sustainable food and drink have been upward trending for the past few years, it’s clear that this subsector is now entering a new stage of growth with volumes of M&A transactions rocketing in 2021,” Buckley said.

“The issue of sustainability remains a priority for businesses, consumers and governments. Demand for British produce and environmentally friendly goods is on the rise and the emerging agritech subsector is at the forefront of delivering new technologies.”

Buckley added that despite the promising turnaround of the market in 2021, the year ahead will throw up a significant amount of uncertainty and challenges, marked deeply by Russia’s invasion of Ukraine.

“We expect rising input prices across energy, labour and materials to be one of the major issues of 2022. Global transport problems and labour shortages will also continue to be disruptive to the industry, despite the Home Office increasing the foreign worker visa to six months for seasonal workers. Full custom controls introduced for goods moving between the EU and UK is also causing headaches for food and drink importers.

“However, challenges aside, we expect the M&A market to remain active, and investors to be increasingly attracted to this resilient industry, as producers and manufacturers continue to re-engage with M&A and re-focus on implementing their growth strategies.”