Some 226 different companies in the UK fresh produce industry are following a strategy that has led them into a blind alley, and they must change quickly or risk disappearing altogether.
That is the verdict of a new study from industry analyst Plimsoll, which has assessed the strategic, financial and commercial performance of the top 1,000 companies in the UK market.
'It’s undoubtedly tough out there with demand still subdued and costs rising all the time,' said study author David Pattison. 'With too many companies chasing too little market, many are finding it difficult to pass on rising costs to customers. As a result, we have seen profitability fall with average margins in the market now down to 1 per cent.'
Pattison explained that the report showed that performance in the market is fragmented into four distinct categories. Based on these categories, he has been able to recommend strategies for the next 12 months to improve or protect each company's performance.
'There are currently 105 companies in the UK Fresh Produce industry that are struggling for growth – granted, they have healthy profit margins and most have little or no formal debt, but they are just not growing,' he noted. 'I recommend these companies change strategy, wake up and sacrifice some of their profits on finding new growth as they are in danger of being left behind.'
Conversely, 127 other companies in the UK market are at the opposite end of the spectrum, he said, growing at a pace way beyond the rest of the market but doing so at the expense of profitability.
'Many of these companies could be accused of 'overtrading' by continuing to make losses and/or financing growth via increasing debt,' Pattison outlined. 'They risk running out of cash unless they return to profit soon.'
Meanwhile, 480 companies are 'clearly the market leaders', achieving above-average sales growth, retaining healthy profit margins at an average of 2 per cent and carrying little to no debt.
Finally, there are 226 companies for whom the strategy for the next 12 months is mere survival or rescue via a takeover, he revealed. These companies have high debts as a percentage of sales at 24 per cent, are averaging profit margins of 0 per cent and are often seeing sales fall.
'These companies need to downsize their operations, focus solely on the profitable parts of their business and work at making a profit or the end is nigh,' Pattison added. 'Some will attract buyers to rescue them but others won’t be so lucky.'
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