Meeting the 3 key challenges facing northern manufacturers
Mergers between retail giants, Brexit uncertainty and evolving consumer purchasing trends have placed mounting pressures on the North’s manufacturing power base over the past 12 months. It’s led to price squeezes on suppliers and has left businesses in a state of bated breath as they wait for the dust to settle on the UK’s divorce from the EU. At the same time, sustainability is edging its way into the spotlight and forcing businesses to change their production processes. At a time when the Northern Powerhouse gains greater attention, these three challenges make up the storm that manufacturers in the north are currently weathering.
The retail superpower that will be the combined force of Asda and Sainsbury’s has sent a seismic shock through the manufacturing sector and its supply chains. The supermarkets have indicated that the merger will save shoppers 10% on regularly bought products. They’ve also stated that they will not be closing any stores or cutting any jobs. Savings then, are most-likely to be passed onto the supply chain, which the supermarkets now have immense purchasing power over. It’s a loss of competition in the market that will be brought to bear on manufacturer’s margins and is just the latest in the growing list of retail M&A activity over the past year, which also includes the potential alliance of Tesco and Carrefour.
Duopolies of this kind rarely spell ‘happy ending’ for everyone involved, however they are a challenge that manufacturers can spin in their favour. If you’re selling only to Asda, the merger offers you an opportunity to quickly build relationships with Sainsbury’s stores as well. With the purchasing power in the hands of the supermarkets, profit margins are unlikely to increase significantly, but this does give manufacturers an opportunity to gain greater market share. What’s more, with Sainsbury’s and Asda getting into the nuts and bolts of the deal, it offers manufacturers a window of opportunity to build relationships with other supermarkets, such as Morrisons or Tesco.
Northern manufacturers face a similar set of challenges as the UK hangs in a state of suspension over Brexit talks. The lack of progress towards a tangible deal is hindering any sense of planning with manufacturers delaying major business plans until a level of clarity is provided by the Government. As much as 62% of the North East’s exported goods alone are shipped to the EU and the absence of any detail about life after Brexit means businesses in this region cannot make significant investment plans.
There are however, ways to ‘plan around’ Brexit. Diversifying traditional customer bases within the UK to work with more local businesses, as well as looking at non-European territories for commercial opportunities means mitigating the potential impact of a hard Brexit and managing the disruption of an unfavourable EU customs border. The Commonwealth in particular presents untapped opportunities for the North once the UK has removed itself from any legal ties to the EU. With this in mind, the Department of International Trade has begun its campaign to promote UK businesses overseas and offers a platform for companies to search for opportunities outside of the EU.
At the same time as they plan for the uncertainties of Brexit, Northern businesses need to be mindful of the changes in consumer buying behaviour. A shift towards locally sourced, original and in particular, sustainable products is a trend being driven by millennials and championed at the top of the chain with the likes of Unilever and other retail giants launching sustainable product lines that are committed to reducing waste and using less plastic in packaging. This is rapidly filtering down to the supply chain, forcing manufacturers – especially those in the FMCG sector – to adapt their processes to rapidly evolving shopper preferences.
It’s something that poses both a challenge and an opportunity for northern manufacturers. Savvy companies can now take advantage of the demand for sustainable products and can position themselves as ‘sustainability-first’ businesses, making themselves more attractive in the current consumer climate. As my colleague Ali Palmer points out in her article on business sustainability, the market conditions are ripe for companies to ‘go green’ and adopt sustainability strategies to boost profitability.
Rapidly changing market conditions and political and economic insecurity on the international stage has created a turbulent 12 months for manufacturers. Those businesses successfully weathering the storm are considering more agile approaches to business strategies and looking at how they can turn these challenges into opportunities.