Consolidate or collapse? The pressures reshaping UK food and drink

Over the past 12 months, at Atradius, we’ve seen the number of food industry claims we’ve received for trade credit insurance increase by 64%. 

It’s a clear indicator of the financial pressures affecting the sector.

The rise in credit default claims is closely tied to another trend: consolidation. A wave of acquisitions and business failures has swept the UK food and drink manufacturing sector. Dealmaking jumped 18% in the year to March, with 78 deals in total, according to data from law firm Pinsent Masons.

This consolidation has been accelerated by some deep-rooted pressures. Among them are stubbornly high costs that are proving hard to pass on, especially for smaller producers whose customers are fixated on prices and money-saving. 

The path to healthy growth is also being hindered by shortages of labour and skills. Vacancy rates in the industry have remained high for a long time now. A 2026 survey of SME manufacturers found that 80% of firms attempting to recruit suitable staff were struggling.  

All the while, firms must contend with regulations and red tape – from environmental regulations to Extended Producer Responsibility for packaging. A fear over what new rules could be introduced next saps confidence. 

This is all adding up to drain UK competitiveness. British food and drink manufacturers are struggling to grow exports, especially to the US, and struggling to keep pace with global competition. Export volumes fell 9% in the first quarter of 2026, hitting their lowest levels in a decade (excluding the pandemic), according to the Food and Drink Federation.

So where else can businesses find growth? Faced with tougher export conditions – including the additional US tariffs introduced in April 2025 – some are prioritising growth at home rather than expansion overseas. But a greater focus on the UK market also intensifies competition at home, adding further pressure to an already crowded sector.

Of course, there are other forces at play. It's not just financial stresses that are prompting consolidation. There is also a desire among food groups and private equity firms to capitalise on the trend for wellness and functional food and drinks, by buying up fast-growing and trending brands. That includes categories such as high-protein food and drinks and gut health products. The recent sales of Huel to Danone and Protein Works to Lactalis are prime examples.

A similar thing is happening among drinks firms, as they chase changing consumer preferences. In February, when AG Barr acquired brands Fentimans and Frobishers, it said they both reflect a shift away from alcoholic beverages to "adult soft drinks".

At the same time, some sub-sectors have become over-crowded. Bakeries are perhaps the strongest example, and change is afoot. For instance, in July, ABF completed its acquisition of Hovis. We’ve seen other bakeries cease trading, such as third-generation chain Coughlans Bakery.

All of these driving forces are likely to continue to reshape the market. Bakeries and food service into hospitality are the two sub-sectors in food and drink that we’re watching particularly closely. Conditions are tough out there and we could see more firms go to the wall or fall into the arms of bigger competitors.

At a time of considerable change, one thing is sure: few food and drink manufacturers can afford to stand still. Many are facing a reality check about where they can compete. Whichever path firms take (greater scale, investment or consolidation), there’s one tactic they’ll all employ: it’s a time to keep a close eye on the financial health of customers and suppliers.