The North has a lot to offer when it comes to food and drink. Yorkshire is one of the UK's premier food and drink powerhouses - its supply chain generates more than £3.8 billion in GVA and provides jobs for approximately 67,000 people. Meanwhile, the North West food and drink sector is experiencing rapid expansion, capturing roughly 15% of total UK food production.

Yet the industry is operating through considerable uncertainty. Climate change, regulation, supply chain disruption and changing consumer behaviour are creating new pressures, while rising costs continue to challenge margins.

Having completed more than 250 deals in Food and Drink over the last five years, we have seen first-hand how businesses are responding.

Pressure on margins

The Food and Drink Federation's confidence measure fell to -64% in the first quarter of 2026, from -31% at the end of 2025. Weak consumer demand and ongoing cost pressures are forcing difficult decisions about investment and employment.

Production costs have continued to rise, while fertiliser costs, fuel prices and disruption to shipping routes are creating further pressure throughout the supply chain. For food and drink manufacturers, these pressures can quickly move from the farm and factory through to the supermarket shelf and ultimately the consumer.

Labour costs are adding to the pressure. The rise in the National Living Wage is encouraging 53% of businesses to consider automation. However, automation itself requires investment, meaning businesses must balance longer-term capacity alongside immediate cost savings.

Access to capital is therefore another important consideration. Businesses may need investment to strengthen resilience, improve productivity or pursue acquisitions, but rising costs can put pressure on margins and available reserves. Availability of finance was the top concern for Food and Drink companies in BDO's poll last year, highlighting the importance of ensuring that investment plans are realistic and appropriately funded.

The result is a balancing act: managing today's costs while continuing to invest in the capabilities that will determine performance tomorrow.

Consumer change creates opportunities

More optimistically, the same changes creating pressure are also opening new markets.

Social media has created a more informed and demanding consumer base, with trends increasingly travelling from markets such as Japan, Korea and Dubai into the UK. Matcha, ube, pistachio, truffle and bubble tea have all benefited from growing demand for new premium products.

Health and nutrition are also shaping product development. Protein and fibre remain major areas of interest, while demand for vegan, vegetarian and gluten-free options continues to influence the market. The growing use of GLP-1 medications adds another consideration, as changes in appetite, portion sizes and attitudes towards nutrition begin to affect how products are designed and positioned. Meanwhile, the rise of low- and no-alcohol products highlights how shifting consumer preferences can create new opportunities.

As consumers become more health conscious and selective about how they spend their money, businesses that can anticipate changing habits and develop products that meet emerging needs will be well placed to grow within these categories.

The North is well placed to respond. For example, Yorkshire is growing its expertise in alternative proteins and plant-based foods, supported by research capabilities including the University of Leeds' National Alternative Protein Innovation Centre. For manufacturers, the opportunity is to distinguish between short-term trends and lasting changes in behaviour, and respond quickly to genuine shifts in demand.

Investing in productivity and resilience

Consumer demand is influencing what food and drink businesses produce, while technology and investment are changing how they operate. Innovation remains a clear priority: the Food and Drink Federation found that 39% of businesses planned to focus on developing new products this year, while 13% planned to develop healthier options.

The North's established manufacturing base provides a strong foundation for investment in both innovation and productivity. Major businesses continue to commit to the region, with Nestlé investing more than £85 million in its York site and Haribo expanding its operations in Castleford. The North West is also home to major manufacturers including pladis, the maker of McVitie's, and Warburtons.

Alongside investment in production, businesses must also strengthen their resilience. Climate change, fertiliser restrictions, rising fuel costs and unreliable yields are increasing supply chain disruption and cost pressures. This is particularly significant in North and East Yorkshire, which produce 20% of the UK's agri-food and play an important role in the wider food supply chain.

Diversification will therefore be increasingly important. Building a broader network of suppliers, across the UK and internationally, can reduce dependence on individual ingredients, regions and supply routes, giving businesses greater flexibility when disruption occurs.

An opportunity for strategic M&A

The pressures facing the sector may also create opportunities for businesses willing to invest. 2026 is proving to be a buyer's market, with strategic M&A offering routes to consolidation, diversification, vertical integration and entry into new markets.

For businesses facing margin pressure, acquisitions can provide access to capabilities or scale that would take years to develop organically. Vertical integration can offer greater control over supply chains, while acquiring complementary brands or products can help businesses respond to changing consumer demand.

Drinks M&A, particularly around low- and no-alcohol products, has been a strong area for deals, while healthy eating trends are supporting interest in protein-based, fresh and unprocessed foods.

For Northern businesses, M&A can provide a way to build on existing regional strengths. Buying can provide capabilities, products or markets that would take years to develop organically, while selling can provide capital for the next stage of growth.

The key question for management teams is what a transaction could achieve strategically. Whether buying or selling, M&A should be considered as part of a wider plan for growth, rather than simply as a financial transaction.

Ingredients for growth

The challenges facing the sector are significant and, in many cases, structural. Cost pressures, climate disruption and changing consumer behaviour will continue to test margins and business models. However, these same forces are also creating opportunities for businesses prepared to adapt. The North's diverse food and drink economy - spanning large-scale manufacturers, agricultural producers, established brands and innovative smaller businesses - gives the region a strong platform from which to respond.

The key takeaway for management teams is that standing still is unlikely to be an option. Growth will come from making deliberate choices: investing where it improves productivity, building greater resilience into supply chains, responding to lasting shifts in consumer demand and using M&A strategically where it can accelerate progress. The businesses that can turn today's pressures into a catalyst for change will be best placed to shape the next phase of growth for the North's food and drink sector.

Download BDO’s 2026 Food & Drink Report to discover the trends, risks and growth opportunities shaping the future of the industry: https://www.bdo.co.uk/en-gb/insights/industries/manufacturing/food-and-drink-report