Monday 20 July 2015

Supermarket price wars fall-out: Food companies across the UK 'on brink'

A report by Begbies Traynor in NamNews says the number of food and drink manufacturers in ‘significant’ financial distress has risen by 54% in the past 12 months to 1,622, 89% of which are small or medium-sized suppliers and farmers dealing with the major supermarkets.

Given that branded goods suppliers need Net Margins of 5-10% to fund brand equity building, and - depending on category - stock rotation of 5-20 times per annum to meet availability KPIs, ROCE performances of 15 -25% to ensure an adequate reward for risk - and thus some local autonomy - it is fairly easy to assess the scale of the fall-out in your categories...  

The key issue for suppliers is their own performance vs other companies in their categories.

In other words, check your company's UK figures at Companies House, for 2007 and the latest available - usually 2014 for most companies - allowing for issues re Corporation Tax (i.e. your company tax domicile arrangements can colour the reported performance at local level) but in general the figures will be usable for most companies in your category, especially in food.

  • Check your own figures, 2007 & 2014
  • Check three competitors on the same basis
  • Assess relative strengths and weaknesses i.e. the relative damage done to date, the ability to continue funding price-cuts and especially the competitors' ability to compete in your category
  • ...keeping in mind that the buyer is equally capable of investing a £1 per set of results, from the same source...
This category-focus will provide a reality-check reflecting latest available data, a basis for optimising consumer strategies and especially a means of identifying and quantifying your walk-away points with the trade.

Unless of course you prefer to believe the politicians and fly blind?

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