How credit insurance can increase the growth appetite of the food and drink sector

Written by Andrew Smith, Client Director.

The food and drink industry is one of the UK’s largest and most essential sectors. However, its reliance on “just-in-time” operations, perishable goods, and strict hygiene standards makes it inherently risky. These operational challenges are now compounded by broader economic pressures, regulatory shifts, and evolving consumer behaviour.

The result? A perfect storm of financial strain that increases the likelihood of insolvency and business failure.

Key risk factors impacting the sector

Rising input and operating costs

Manufacturers face escalating costs across multiple fronts:

• Energy and fuel
• Labour and training
• Packaging and raw materials
• Transportation (often temperature-controlled)

These pressures restrict cashflow and reduce financial resilience.

Cost of living and consumer behaviour

Inflation and wage pressures make it harder to retain staff, while consumers who are facing tighter budgets, are shifting toward cheaper alternatives. This affects both sales volumes and margins.

Regulatory changes

Sustainability mandates are pushing businesses to adopt eco-friendly packaging and practices, often at a higher cost.

Extended credit terms

To support struggling customers, many businesses are offering longer payment windows. While this may ease short-term cashflow issues, it increases exposure to non-payment and insolvency risk.

Insolvency trends: A sector under pressure

Recent data from Tokio Marine HCC’s UK Food Sector Report 2025 highlights the volatility in the sector:

• 2023: Insolvencies surged with food manufacturers up 21 per cent and drinks manufacturers up 29 per cent
• 2024: A modest recovery with food manufacturer insolvencies falling 18 per cent, drinks manufacturers dropping 11per cent

While this suggests some stabilisation, the underlying risks remain. Food price inflation has eased from its 2022–23 peak but still exceeds pre-pandemic levels, squeezing margins.

Labour costs and market dynamics

The minimum wage has risen by 40 per cent since 2020, alongside higher national insurance contributions and business rates. These increases hit labour-intensive sectors like hospitality particularly hard.

Meanwhile, consumer and business confidence remain fragile. Grocery sales rose five per cent in the 12 weeks to mid-June 2025, but this growth is largely inflation-driven rather than volume-based.

Retail dynamics are also shifting:

• Tesco continues to gain market share
• Asda’s aggressive price-cutting strategy is eroding profitability across the sector

Looking ahead: 2025 and beyond

Despite signs of recovery, the outlook remains cautious. Elevated energy prices, high interest rates, and changing consumer habits – including increased saving – continue to pose risks and uncertainty. Data from early 2025 already shows rising insolvency rates in some food-related sub-sectors, with further deterioration expected in the second half of the year.

Why credit insurance matters more than ever

In this challenging environment, credit insurance is not just a safety net – it’s a strategic tool that can and should be utilised by UK businesses. It enables businesses to extend credit with confidence, protect against bad debt, and maintain financial stability in the face of uncertainty.

For food and drink manufacturers navigating a volatile market, credit insurance offers peace of mind, insights into potential risks on the horizon and a buffer against the unexpected.

To find out how credit insurance can better protect your business from uncertainty and risk, speak to our specialist team today on 020 7623 3806.