The high cost of ingredients, innovation, staff retention, and sustainability issues are the major business challenges facing the UK food and beverage sector, according to a survey of industry executives.
The priorities are listed in an annual survey released yesterday by Allegra Strategies of 187 top food and drink executives from across the UK industry. The companies they represent account for three-quarters of the industry spend.
The 'Top of Mind Survey' found that rising food costs remain the single biggest business challenge and very important current concern for 50 per cent of the executives.
Innovation and new product development, attracting and retaining staff and sustainability issues were also listed as major business challenges.
"Executives are convinced that high calibre frontline staff will be as important as leadership as 'service excellence' and the delivery of genuine 'customer experience' become essential corporate characteristics over the next five to 10 years," Allegra Strategies stated.
In the area ethical sourcing, executives said reducing their companies' carbon footprints and less packaging are the top three focus areas.
About 20 per cent said organics would be an important growth segment.
In relation to sustainability, about 70 per cent believe that brand identity will become an even more critical point of differentiation over the next five years.
"Successful brands will be those that combine creativity, passion, simplicity and relevance while communicating a compelling brand story -- and frequently with ethical credentials -- to a defined target audience," Allegra Strategies stated.
Despite the gloom over rising input prices, 60 per cent of industry leaders remain "firmly optimistic" about the current business climate, the firm stated.
"The capacity to innovate and develop new products will be the most valuable corporate competency in a highly competitive but increasingly diverse and fast-evolving food and beverage landscape over the next decade," the report stated.
The main drivers of opportunity centre around consumer 'mega trends', such as the move toward healthy eating, convenience and a growing "culture of food".
Local provenance, ethical consumerism and more frequent eating out are also important UK and global directional trends.
Another important feature is the rise of more informed and more demanding consumers, Allegra Strategies discovered.
The importance of healthy eating was highlighted by the finding that obesity was likely to become the biggest single issue for the industry as identified by 60 per cent of the respondents.
Industry leaders felt strongly that government could play a greater role in encouraging healthier eating, Allegra Strategies reported.
In the area of eating habits, about 70 per cent of the executives believe that UK consumers will be eating out more often in the next five years.
Two-thirds also expect UK consumers to be visiting a wider array of outlets in five years time.
"But ownership of these outlets is likely to be in the hands of increasingly larger corporations with managed brand portfolios," Allegra Strategies stated. "Leaders point to the rapid success of branded chains within the UK food and beverage landscape, a trend that is expected to continue for many years."
The industry leaders said their most admired food and beverage brands were Innocent Drinks, Pret A Manger, Marks & Spencer, Starbucks Coffee and Tesco.
"However despite a future food and beverage landscape dominated by fewer, larger players, an important counter-trends towards authentic, local, crafted and premium products are providing a wealth of opportunities for smaller, nimble and more creative players, leading to a polarising market," the firm stated.
The executives also expect more merger and acquisition activity over the next two to three years as emerging niche leaders are acquired by large organisations seeking to gain access to innovation rising brands.
The respondents to the survey were typically chief executive officers, managing directors, other directors and senior managers from the UK's top retailers, foodservice operators and manufacturers.
The interviews were completed between 14 October and 1 November 2007.