The cost-of-living crisis continues to dominate the concerns of those working in, and representing, the bakery and snack sectors.
According to Alasdair Smith, CEO of the Scottish Bakers, “Soaring energy costs and rising ingredient bills coupled with the ongoing recruitment and retention troubles we face make the price of doing business harder than it has ever been.”
The Association previously brought attention to the reality that bakers in Scotland, and it suspects in England too, are facing “an existential crisis”, said Smith. As such, ongoing inflation and supply chain struggles for bakery and snack manufacturers are expected to continue.
“I cannot see this going away for 2023,” he added.
Rising prices show no signs of slowing
I fear for many, the focus for the next year will simply be on surviving. Alasdair Smith, CEO, Scottish Bakers
In December 2022, the Food and Drink Federation (FDF) Scotland reported ongoing price hikes.
In its latest food inflation rates, it stated that November 2022 became the 16th consecutive month of accelerating food and drink inflation. With findings indicating it is the highest inflation rate since September 1977, the FDF saw prices increase to 16.5%.
From the 49 main food categories analysed in the official statistics, 41 saw double-digit growth and several of the ingredients with the highest inflationary levels are mainstays in the bakery and snack sectors. Inflation of low-fat milk rose to 45.3%, margarine and other veg fats and whole milk stood at 33.9%. In the latest figures, flours and other cereals sat at 30.1%, butter at 28.4%, olive oil at 25.2% and eggs at 23.5%.
Predictions indicate that persistent cost increases will continue throughout 2023 and potentially beyond, putting further pressure on manufacturers who have already seen rising prices for over two years. Latest producer prices from October 2022 reveal the cost of UK-sourced ingredients grew by 18%. Yet, the most significant increase was in imported ingredients, which was up by 31%.
Uncertainty following energy price cap removal
In particular, Scottish Baker’s members fear what lies beyond the end of March 2023, when the price cap for business energy users is currently scheduled to end.
“We fear that without further intervention, we will see many businesses forced into closure,” said Smith.
Along with its sister associations across the food and drink sector, the association – which has been the voice of the industry since 1891 – continues to lobby the government for long-term security. With the energy price cap in place until the end of March 2023, the threats for businesses are still there.
It is also calling on the Scottish and UK governments to continue investing in training and apprentices to shore up the sector’s future. With the industry needing skilled staff immediately, more must be done to attract people and overcome staff shortages, which the Association believes is holding businesses back.
“Our craft is valued and loved by the communities we serve, so the opportunity is there to keep innovating and to keep delighting customers by perhaps bringing a little cheer through what is undoubtedly going to be a tough winter for us all,” said Smith.
Many of Scottish Baker’s members claim that despite the challenges, they are busier than ever, though they are experiencing slimmer margins. Insights also reveal that consumers continue to purchase treat-based baked and snack goods, so the SBA expects product demand to remain buoyant.
The FDF’s latest State of Industry report – released in November 2022 – points towards glaring concerns that ongoing cost increases have eradicated margins, which manufacturers envisage to continue into 2023. In the UK, manufacturing shrunk for a fifth consecutive month in November 2022, the FDF revealed. Lower demand and ongoing disruptions to supply chains were vital influences.
Consequently, half of the industry’s manufacturers have stopped or decreased their investment projects. Those investments that are going ahead are focusing on reducing internal cost pressures. For manufacturers, the priority now remains on ensuring efficient energy use and ongoing new product launches to meet consumer demand and drive sales.
What can we expect in 2023?
As we enter 2023, the expectations for the medium-term outlook revolve around concern.
However, hope and optimism persist amid the crisis. Immense creativity with grit and determination are present.
“So businesses with passion and flair really do have the opportunity to stake their claim on the high street of the future and to be a part of bringing town centres back to life,” shared Smith.
Yet, for businesses battling with soaring energy price hikes, supply chain disruption and labour shortages, they cannot rely on their creativity, tenacity and drive alone.
“I fear for many, the focus for the next year will simply be on surviving,” he added.
As the baking and snack sectors are left to digest the news that inflationary figures are unexpected to slow down, the FDF anticipates pressures will remain high for manufacturers.
Manufacturers are actively looking to the government to provide support to help them through the current cost-of-living crisis.
According to the FDF’s State of Industry report, of those asked, 53% want tax incentives to support capital investment and 44% want to see a decrease in the costs and burdens associated with moving goods between the UK and the EU.
To best support manufacturers, ‘urgent clarity’ from the government on what energy help will be made available to the supply chain is needed, the FDF states. As the industry sees measures that are both low-cost but high impact still available yet unused, in the immediate future, the hope is that these will be utilised to lower unnecessary regulatory burdens on the baking and snack sectors and help reduce inflation pressures.
