Eversheds Food and Beverage Conference – key highlights
19 October 2016
Keynote Speaker: Outlook for the food and beverage industry
On Thursday 13 October, Eversheds hosted its Annual Food and Beverage conference, which featured a keynote address by Clive Black, Head of Research at Shore Capital.
Clive opened by reviewing the current market conditions. Such a review would be incomplete without commenting upon the referendum, and whilst the overarching comment was that the “only certainty is uncertainty”, the picture was not entirely bleak. Aside from the divisions highlighted by the “leave” and “remain” campaigns, GDP growth is still forecasted and foreign investment in the UK has continued since the results of the referendum; taking advantage of sterling’s weakness. Brexit’s impact upon consumer confidence and the impact of evolving Government policy will be of particular interest in the near future.
Clive explored the habits of the increasingly savvy consumer – who shops around and values “wellbeing” but still invests in the occasional “affordable treat”. The discounters have appealed to the savvy shopper by offering simple low prices, and 60% now shop at Aldi or Lidl. However, further growth for the discounters is predicted to be through opening new stores and, moving forward, Clive is expecting the big supermarkets to continue to stabilise and to fight back, exerting pressure upon the discounters.
Clive ended by highlighting the anticipated further rise of UK foodservice, with Horizon forecasting growth from £45bn in 2015 to £56.5bn by 2019. Whilst a very different prospect to retail, entrepreneurial innovation is expected to increasingly appeal to the consumer market, so one for supply chains to think about.
Practical challenges facing the food and beverage industry surrounding supply chains and traceability
Clive Black was joined by fellow panellists Darryl Thomson, Head of Safety at Mitchells & Butlers, and Lee O’Connell, Head of Corporate Risk and Compliance at Eversheds Consulting, chaired by Eversheds Partner David Young, to look at the shift the food and beverage industry is making towards clearer traceability and provenance of food in the wake of the horsemeat scandal that erupted in 2013.
The horsemeat scandal raised an issue that was not one of food safety: rather that of consumer confidence. Both consumers outside of the food and beverage industry and those who work within it were shocked as the scandal revealed our regulatory regime, previously thought of as robust, to be flawed.
Since then, market research has shown that traceability is a top priority for consumers, over and above price. Darryl described how Mitchells & Butlers have gone to the lengths of owning their own livestock. Whilst this results in a greater expense than sourcing the meat on the free market, this investment is made because provenance is paramount to their customers.
Three years after the horsemeat scandal, the industry is turning to collaborative efforts to maintain its integrity. Steps are being taken towards this by creating accurate testing mechanisms to spot errant contamination of food products. With the rise of the ‘well-being generation’, the industry is striking a balance between the risk averse and the risk aware by taking a pragmatic approach to visibility. Key to this is transparency of the food and beverage industry: back of house must now be front of house.
Merger control implications for corporate deals
With 11 CMA merger decisions in the food and beverage sector since 2014, 5 of which were “called in” by (rather than notified to) the CMA, the CMA’s interest in this consumer facing sector remains strong. Businesses contemplating acquisitions need to be aware of the UK merger control regime and how to manage it.
With this in mind, Stephen Rose and Aleen Gulvanessian, Partners at Eversheds, delivered an informative session providing an overview of the CMA’s merger control regime, outlining the consequences of a deal being caught and options for approaching the CMA. Stephen and Aleen also discussed how to get mergers “over the line” should a Phase I investigation be initiated.
Key themes emerging from the presentation included the value of early preparation and the importance of the quality of evidence when dealing with the CMA. With regard to getting mergers “over the line”, Stephen, Aleen and the delegates explored the merits of several arguments, including the novel application of the “failing firm” defence in the recent Müller/Dairy Crest merger on which Eversheds acted.
Stephen and Aleen concluded by noting that the CMA is likely to be interested in food and beverage sector deals moving forward and that merging parties will need to manage the expectations of their company’s senior management on timing and risks and be as prepared as possible before a notification/investigation, ensuring that the parties have the correct strategy and evidence from the outset.
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Current tech trends in food and beverage
Charlotte Walker-Osborn, Technology & Outsourcing Partner at Eversheds, was joined by Ciarán Kinsella, Head of Business Systems at Yum! Brands, and Toke Myers, Privacy & Data Associate at Eversheds, to explore the latest technology trends and challenges for the food and beverage sector.
Ciarán shared his experience of managing innovative and strategic technology projects and his checklist / key commercial tips for successful partnerships with suppliers. This included the need to put the business’ needs and requirements front and centre and to analyse the extent to which the technology solution will or could (with tailoring) actually serve the business’ need, and then to assess the risks to overcome (including legal) and the steps to get there.
Ciarán and Charlotte looked at how customers can and are swapping traditional “supplier” contracting models for true “partnerships” and, at times, more agile ways of working to create mutual “win-wins”, technology innovation and to create value. Achieving a flexible and workable contract for both parties will often hinge on ascertaining particular features from the outset, including the requisite skills and resource and creating a flexible model of trust with the requisite level of legal robustness.
Charlotte and Ciarán pondered the question of ‘change control or defect?’ – a common source of difficulty during technology relationship lifecycles. The key to this is robust contract drafting and, in particular, a very clear Acceptance Criteria and proper management of the technology build, particularly for agile contracting.
Toke addressed the key privacy issues to consider in the context of a technology project: timely given the impending GDPR which will apply from 25 May 2016. Toke emphasised the need to think about privacy from the inception of your technology project and at each stage throughout, by deploying ‘privacy by design’ techniques which will be mandatory under GDPR, areas where Charlotte and Toke had seen customers make costly mistakes. In addition, Toke discussed the continuing need to clarify where data will be stored, particularly in a hosting contract scenario, and how customers will work with their vendors to meet mandatory security breach reporting time limits under GDPR.
Charlotte wrapped up the session by sharing her observations on Artificial Intelligence, Internet of Things, and Additive Manufacturing/3D printing trends. Charlotte encouraged delegates to consider the intellectual property and ‘big data’ issues at play with the use of AI and to embrace pilots / potential partnerships with additive manufacturers to create fit for purpose printed products (including food) whilst bearing in mind the legal considerations around this bleeding edge technology.
Brexit – potential impact on the food and beverage sector
Our panellists Ian Wright, Director General of the Food and Drink Federation, and Eversheds Partners Ros Kellaway and David Young, chaired by Eversheds Head of Consumer James Batham, had a wide-ranging and thought-provoking discussion about the impact of Brexit on the sector.
They looked at a variety of ways in which the referendum result could or will affect food and beverage companies:
– issues surrounding the terms of trade and what the government will be able to agree, particularly around tariffs. Although the UK is a WTO member, it does not have its own tariff schedules as it currently trades on the basis of the EU’s tariff schedules. The UK will need to adopt its own tariff schedules on Brexit;
– the impact on farmers, including loss of subsidies under the Common Agricultural Policy and seasonal workers, and how this will affect the sector as a whole;
– the effect on the workforce, including the added expense and bureaucracy of hiring people outside of the single market, which could cause a resulting increase in costs for food and beverage companies;
– the question of where multinational companies will headquarter, might they choose Ireland over the UK as the gateway to the EU?
– whether the Tesco v Unilever disagreement is a sign of things to come. The sector is seeing a rise in costs which can’t be absorbed by suppliers indefinitely.
Overall our panel agreed that whilst there may be some years of uncertainty, with the right approach the UK’s departure from the EU might ultimately leave the UK food and beverage sector more competitive and a stronger global player.
Please visit our Brexit hub for our latest updates.