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.

Comments

Simon Carter at 31/08/2018 10:26 said:

An interesting article that covers some - but in my opinion - not all of the issues.

I have just completed an 8-month interim assignment for a northern b2b retailer/manufacturer/service provider, where I was asked to develop the strategy for this 133-year old, 4th generation family business to expand into the south of the UK... which exposed me to a number of other challenges - at least for a northern business seeking to generate/dominate the south.

Firstly, there is a difference to employability. Many of the businesses in the north have very stable workforces - people work for the same company for many years - in some cases generations. This gives them an advantage versus other parts of the country in terms of people really understanding the business, low turnover, and high levels of loyalty. Of course, the negatives are that it reduces the input of new ideas, and perhaps a more conservative approach to commerce. This difference is something the company needs to appreciate - the two lead to requiring different approaches to how they are addressed.

Secondly, northern supply chains are easier to manage, and potentially not in keeping with the needs of the much more complicated southern markets. With the onset of the Amazon's of this world changing the paradigm around delivery times, the higher levels of physical security in the South demanding very agile (and trusted) suppliers, and the necessity for true omni-channel servicing - all put pressure on the prevailing model that those used to only operating in the north have to deal with.

Finally, is simply the pace. Northern businesses are - quite rightly - very proud of their heritage, and expect customers to respect that. In the south, competition is so intense that retailers will often mortgage their grandmother to get a sale. Neither is right, but they are different...

The best companies have a good blend of employees and practices that originate from the north and the south... of the north/south divide. Simply seek to trade from one to the other will prove difficult for anyone...

Chris Lipscomb at 28/09/2018 13:17 said:

An interesting and thought provoking article.
I think that there are a number of synergies and links between the various issues mentioned in the article.
Duopolies like Asda/ JS will drive price pressures but also offer the potential for volume increases. If the business is prepared to invest quickly, despite the Brexit uncertainty, in either capital equipment to reduce costs OR in the training and development of their staff to embrace Lean workplace practices then achieving a similar profit level even with the price pressures will still be a possibility.

One of the big opportunities within most manufacturing organisations is to improve the sustainability of their products, to tackle waste that is generated and reduce it to a minimum. Making the commitment, as a business, to reduce the environmental impact of a business and setting clear challenging targets is a great place to start the journey. Celebrating the milestones is essential to keep the teams focused on their achievements and the aim. As the article makes clear staff, customers and consumers of all generations are now more aware of their impact on the environment and being prepared to make public commitments to sustainability will have a beneficial impact on the whole business.
The involvement of the whole business in these initiatives will drive improved profitability, repeat-ability and ethical credentials and generate a positive point of difference with similar products. The challenge in many cases is getting the buy in at a senior level to engage with the shop floor teams and to invest in the training, equipment and changes of processes needed to get the most out of the opportunity. As in your previous contributors point – sometimes the problem is the mindset of heritage - “we have always done it like this” is a phrase that needs to be challenged and disrupted, respectfully.
Most staff want to belong to a company that is not just making good products but is also doing good in the process so by making the right decisions and investing in the sustainability of the business you are improving the potential retention of staff, knowledge and experience- even in the South of England.