UK food and drink leaders forced into trade-offs as costs hit operations

New research has laid bare the mounting pressure on the UK food and beverage sector, as a majority of industry leaders warn that surging operating costs are severely undermining their ability to build long-term operational resilience.

According to the Operations Outlook 2026 report by global consultancy Argon & Co, 54% of UK C-suite leaders identified inflation and rising costs as the single most significant challenge facing their organisations in 2025.

This financial strain is creating a “rock and a hard place” scenario, forcing manufacturers to choose between protecting immediate profit margins and investing in the infrastructure needed to survive future disruptions.

The report highlights a particular crisis in supply chains, with 40% of food and beverage respondents stating that rising raw material costs are negatively impacting their operations. This pressure follows a year of significant domestic fiscal changes, including increases to Employer National Insurance and the National Living Wage, alongside a rise in inflation to 3.4% earlier this year.

“C-suite leaders are expected to build organisations that can withstand disruption, while also maintaining profitability,” said John Thorpe, partner at Argon & Co. “But finding these efficiencies is actually one of the best ways to build resilience. Leaders who develop the muscle for continuous transformation will be best placed to navigate this uncertainty.”

To combat these headwinds, the industry is increasingly turning to advanced technology as a survival tool. The research shows that:

• 52% of UK leaders are now using artificial intelligence (AI) and automation to drive efficiencies and offset labour costs.
• 53% are focusing on inventory optimisation to reduce working capital pressure and improve cash flow.
• 49% of global leaders view digital twins and predictive analytics as the greatest opportunities for manufacturing resilience over the next five years.

Amanda Khalaf, partner at Argon & Co, noted that digital twins allow food producers to run ‘what-if’ scenarios and stress-test their supply chains before crises occur. “Technology alone won’t build resilience,” she cautioned. “The organisations making progress are integrating technology, people, and processes to respond to disruption faster than competitors.”

While the outlook remains challenging, the report suggests that growth is still achievable for those who move away from “change fatigue” and toward a cross-functional approach. By reducing non-essential spending — a move already taken by 52% of leaders — and reinvesting those funds into adaptive operating models, firms can bridge the gap between short-term survival and long-term stability.

For a sector that has endured half a decade of shocks — ranging from Brexit and COVID-19 to global energy spikes — the 2026 agenda is clear: automation and digital transformation are no longer optional extras, but essential components of the modern food and drink supply chain.

Further data and insights can be found in the full Operations Outlook 2026 research report, available for download here: https://www.argonandco.com/en/news-insights/whitepapers/operations-outlook-2026/