Food and beverage insights Q4 2021

The UK food and drink (F&B) industry enjoys an annual turnover of more than £105 billion. It accounts for 20% of total UK manufacturing revenue and is the single biggest manufacturing sector in the country, according to 2021 stats from the Food and Drink Federation. So when consumer habits change in this industry, businesses must be able to adapt quickly – or risk being left behind.

Consumer demand for ‘green’ food and drink alternatives has been slowly rising over the past decade. And the availability of plant-based and dairy-free F&B products in supermarkets, restaurants and in the workplace has slowly become commonplace.

In fact, the proportion of UK consumers purchasing plant-based alternative food and drinks has nearly doubled in the past decade, according to a new (and possibly first) analysis of plant-based alternative foods (PBAF) consumption trends in the UK. The study followed the dietary details of 15,655 people and found the proportion who reported drinking plant-based milk and eating vegan sausages and vegetarian burgers, for example, rose from 6.7% to 13.1% between 2008-2011 and 2017-2019.

Businesses are beginning to capitalise on these trends, as shown in the interactive timeline below:

Plant-based alternatives reached a much wider political consciousness in 2010 following a UN Environment Programme (UNEP) report which foreshadowed that a global shift towards a vegan diet was vital "to save the world from hunger, fuel, poverty and the worst impacts of climate change” (Guardian, 2010).

Since then, the meat-free sector has seen a series of firsts: from the launch of Europe’s first vegan supermarket chain to insect-based protein powders to alleviate childhood malnutrition, from lab-grown burgers and synthetic meatballs to high street supermarkets launching their own meat-free ranges.

The rise of low-tax low-alcohol beverages led to innovation in the drinks market. And dairy-alternative beverages became highly desirable, culminating in last May's IPO by Swedish oat milk producer Oatly, which went public with an initial valuation of $10 billion. Prior to that, Beyond Meat, a producer of plant-based meat substitutes, went public in 2019 as the best-performing US IPO since 2000.

What's driving green F&B now and in the future?

The pandemic has acted as a catalyst for growth in the green F&B market. Widespread fears of a shortage of meat and dairy products ramped up sales following factory closures from COVID-19 outbreaks.

At the same time, consumers began to shift to plant-based alternatives in an effort to boost natural immunity. Bloomberg reported, for example, that the plant-based meat industry saw sales increase by 264% at the height of the pandemic; dairy alternatives also saw an increase in demand, with oat milk sales up 347% year-on-year in March 2020.

Looking forwards, we expect these trends to continue. Global macro-economic factors – from population growth to the net-zero agenda to continued plant-based innovation – will continue to drive growth in these markets over the long- term.

With increasingly environmentally conscious consumers and growing investor appetite in plant-based R&D comes significant growth opportunities for businesses – and also potential substantial return on investment for investors.

To continue the conversation, get in touch with Chris Williams or Jake Foad.

HMRC's ninefold increase in the number of NMW compliance officers – from 50 in 2015 to over 450 currently – sends a strong message of its continuing clampdown on NMW compliance, regardless of whether it is an intentional or unintentional breach.

The financial penalties, which include 200% of the total underpayment, and the reputational damage can be significant and are best avoided. High-profile F&B breaches include Pret A Manger, which was 'named and shamed' by HMRC last August for an underpayment involving a form of salary sacrifice. And restaurant chain Wagamama fell foul of NMW rules in 2018 over a request to front-of-house staff to provide their own black clothing alongside the company's branded top.

Here are five issues you need to look out for to stay compliant.

1 Incorrect worker type classification

Understanding which worker type your employees are for NMW purposes is essential. You will need it to calculate whether or not they have been paid NMW for all the hours they have worked in a pay reference period (PRP).

The four worker types for NMW purposes are salaried, time, output and unmeasured. Each has a different set of criteria to meet the worker type definition. Getting this classification wrong can lead to significant underpayments if a worker is deemed not to have been paid for all the hours worked in a PRP.

2 Annual rate rises and significant birthdays

Employers have a legal responsibility to ensure workers are paid the correct NMW rate for all the hours worked in a pay reference period. Each April, NMW rates increase and are broken down into five categories: 23 and over (formally 25+ pre-April 2021), 21-22-year-olds, 18-20-year-olds, under 18s and apprenticeship rate.

Employees should be paid the correct NMW rate according to their age at the start of the next PRP. For example, if an employee has a significant birthday in the middle of a monthly PRP, then the new NMW rate is only applicable at the start of the next PRP and not the date of the significant birthday.

3 Deductions from pay

Employers can legally make numerous types of deductions from pay. But you should always consider how it might affect NMW before doing so due to the risk of falling into non-compliance.

Most deductions reduce a worker's pay for NMW purposes (unless they are specifically exempt) and may therefore risk pay levels falling below the minimum wage. Deductions made by an employer and paid directly to a third party (for example, an employer deducting childcare vouchers and paying the amount directly to the nursery) and deductions under conduct and discipline do not reduce pay for NMW purposes and are exempt.

Care must also be taken if applying a salary sacrifice scheme to a worker, as this will also reduce a worker's pay for NMW purposes. It doesn't matter whether or not the deduction is for the benefit of the employee; pay for NMW purposes is still reduced.

4 Unpaid working time

It is vital that all time considered working time for NMW purposes is recorded and paid for at or above NMW rates. One of the most common NMW risks is employers not paying workers for all working time.

What constitutes working time is an employment law matter; however, here are some examples:

• Travel and waiting time for the purpose of work (excluding commutes)
• Training time
• Team meetings
• Untaken breaks
• Work completed at home

5 Recordkeeping and enforcement

It is legally your responsibility as an employer to keep sufficient records to demonstrate all your employees are paid at least the national minimum wage for all the hours worked for a minimum of six years.

HMRC NMW investigations can be costly and add a significant administrative burden to a business. Penalties of 200% of the underpayment and being publicly 'named and shamed' are the significant risks of breaching NMW regulations.

With big changes in how people are working as a result of the pandemic, the risk of inadvertently underpaying staff is potentially raised at present. For example, F&B businesses should check that any additional procedures required due to COVID-19, which requires their workers to arrive earlier or stay later, is correctly accounted and paid for. Conducting an initial light-touch HMRC-style review can help you spot potential risks and provide assurance on NMW compliance.

To discuss these issues further, please get in touch with Phil Cavill.