Market analyst Plimsoll has revealed in a new study that one in four companies in the UK fresh produce industry are making a loss, as many struggle to pass on cost inflation to their customers with competitive pressure restricting their pricing power.
David Pattison, lead analyst and author of the Plimsoll Analysis – Fresh Produce, highlighted the growing problems in the market, with growing costs in areas such as fuel or wage demands squeezing companies to the point where 46 per cent have seen gross margin fall over the past 12 months.
'Unfortunately, many are reluctant to pass on price rises for fear of losing customers to cost-savvy competitors,' Mr Pattison explained. 'However, falling profit margins across the industry is the first warning sign that this strategy gas become unsustainable.'
The average profit margin the UK fresh produce industry has fallen to 2 per cent over the past two years, he continued, with 225 companies losing money and some 115 of those doing so for the second consecutive year.
'These companies face a tough decision – protect their market share and continue to lose money or adjust their prices to reflect their increased costs,' said Mr Pattison. 'Without refocusing on the bottom line, many of these companies will simply run out of cash.'
It is not all bad news across the industry, however, and Mr Pattison acknowledged that many companies are getting it right.
'442 companies have managed to actually increase their profit margins over the same period,' he revealed. 'In all 775 companies have managed to stay in the black despite rising costs. Clearly, operating profitably in the UK fresh produce industry is difficult but not, as yet, impossible.'
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