U.K. and Ireland Food & Drinks Industry Overview Part 3: Shoots of Recovery

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Researched by Protel Associates Limited in alliance with Industrial Info Europe (Galway, Ireland)--For the Food & Beverage Industry in the U.K. and Ireland, 2008 was a pretty dismal year. Plant closures, massive redundancies, reduced consumer spending and supermarket price wars have all taken their toll on the production side of the business and many of the projects that were planned.

Fox's Biscuits, part of Northern Foods plc (LSE:NFDS) (Leeds), was expected to invest about £40 million toward the end of last year in updating existing facilities and possibly building a new plant, but this was shelved thanks to the economic downturn. At the start of the year, drinks giant Diageo plc (NYSE:DEO) (London) put on hold plans to construct a £600 million 'super brewery' in Leixlip, County Kildare, in Ireland. Chilled food company Cavaghan & Gray, also part of Northern Foods, was expected to spend £3 million on facility upgrades at its Hull facility. This was cancelled after Northern Foods lost a key contract with Morrison's supermarket, and the whole plant is scheduled for shutdown. This is just a small sample of the production and expansion cutbacks that characterised a very tough 2008. However, while there has not been too much to celebrate in 2009, there are some small signs that some capital expenditure projects are getting a second look.

"There is now an increase in commitment to future projects," said Andrea Jackson, Research Manager, Food & Beverage, with Protel Associates. "A lot of the projects are still on hold, but some are now being reviewed. Up until now, the downturn has resulted in big projects being put on hold and more smaller projects and refurbs being looked at. The general consensus from main contractors seems to be that, with the exception of one or two larger projects, they are seeing smaller-scale projects. As a result, many are known to have reduced overheads by laying off [sub]contractors and have diversified into other areas such as renewable energy. There is also an increase in the number of contractors tendering for business, and with costs being squeezed, cheaper alternatives with reduced specifications are being considered."

Ms. Jackson added: "The [plant] upgrades will continue through the end of the year and increase towards the end of the year--a lot of inspection going on from the bigger suppliers, thanks to pressure from retailers to bring facilities up to standards. Spend will be limited.

"That said, in recent weeks, from speaking to suppliers and end users, there's a lot more activity. There's an increase in the number of projects being looked at now for Q1 next year. Capex plans are being prepared."

It's not all doom and gloom though as we enter the second half of 2009. Projects still on track from last year include GlaxoSmithKline plc's (NYSE:GSK) (Brentford, Middlesex) plans to build a new £50 million bottling works in the Forest of Dean, Gloucestershire. Sitting next to the Ribena plant in Rock Lane, Coleford, the new plant will make one billion bottles for the Ribena and Lucozade brands each year and be one of the largest bottling facilities in Europe. Amidst all its closures, Diageo also has plans to build a bottling plant, creating 400 jobs at its packaging plant in Leven, Fife, Scotland. A new food-packaging factory at York's Nestlé site, owned by IPS (First) LLP (Pontefract, West Yorkshire), is now up and running and will employ up to 200 people.

Despite the economy, U.K. food exports are booming, worth £9.23 billion in 2008, up 20% in value terms from 2007. Throw in a splash of alcohol exports, particularly Scottish whiskey, and that figure rockets to £13.6 billion.

Jackson concludes: "Although there is still some very mixed feedback in the marketplace, we are starting to see the very early signs of recovery, with projects starting to crawl out of the woodwork. Major projects on hold are starting to be reviewed, which is expected to lead to a surge forward in capex plans in Q1 2010."

Protel Associates is the leading provider of sales intelligence for equipment and service suppliers to the U.K. & Ireland Process Industries with particular emphasis on the Pharmaceutical/Biotech, Chemical and Food & Beverage sectors. Protel's information is researched, validated and confirmed by a highly skilled and experienced team to provide intelligence that is not otherwise available in the public domain.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.