'Niche' areas such as health foods and 'free-from' items, as well as products with a proprietary recipe, have seen significant growth over recent years and now account for about 10% of the overall food market in the UK, according to Barclays.
It said: "Increasing fragmentation within the food retail sector, with the rise of smaller shops and specialist outlets, will give manufacturers greater opportunities to develop their specialist niche products further. These foods can also give manufacturers the valuable position of being seen to support the major supermarkets with growth into new and developing markets. Additionally, some niche products can carry a unique formulation, which reduces the ability of retailers to seek readily alternative suppliers."
Mike Rigby (pictured), head of manufacturing at Barclays, said: "The development of niche products and a move towards premiumisation offers manufacturers alternative routes to growth and profitability in both domestic and export markets. UK manufacturers have long seen the benefits of long-term planning and investment strategies to meet changing market needs and new opportunities. It is encouraging to see that changes within the structure of the UK food retail sector are contributing to strong levels of optimism among manufacturers."
The report also revealed that more than three-quarters (76%) of food and drink manufacturers are optimistic about growth prospects for the coming year, 77% predict long-term growth in the next five years and 63% expect to increase their profits this year. Confidence is further reflected in investment levels with 82% of respondents saying that investment has been maintained or has risen in the past two years, and 79% expect it to rise or stay the same over the next two years.
As the UK's largest manufacturing sector, the food and drink industry is a £95 billion business, accounting for almost a fifth of manufacturing output and employing 400,000 people directly, with a further 1.2 million people in sector-related jobs.
