Analysts are split on the subject of size and its importance to a fresh produce company’s financial performance.
A report by Plimsoll Publishing - on freshinfo earlier this week - throws doubt on the retail pursuit of efficiency through scale and consolidation, with many smaller companies apparently outperforming their larger counterparts.
It also suggests for many fresh produce companies, life outside the retail supply chains could be far rosier.
David Pattison, senior analyst with Plimsoll, said: “While larger companies have more kudos and glamour attached to them, the reality is there are a lot of excellent companies that just get on with running their businesses outside of the rat-race.”
The study looked at the largest 150 companies in the sector, and then compared their performance with that of 1,000 smaller competitors.
Of the top 150 companies profiled, 72 failed to increase sales beyond that of the industry average, while 80 also made less profit than the average industry performer.
Other revelations include the fact that 60 companies are now less efficient in their use of people, while 29 are rated as being in financial danger.
Of the smaller 1,000 companies profiled, 107 increased sales at over 21 per cent last year - proving that good growth is possible in a stable market, while 103 delivered over six per cent pre-tax margins - proving that high profitability is achievable irrespective of size.
Pattison said: “It goes to show that economies of scale are not all they’re cracked up to be, and a large, strong market exists outside that of the big multiple retailer sector.”
He said some of the smaller companies are doing well because they are not focusing solely on price, but looking for other ways to add value for their customers.
However, John Giles, of Promar, said, when it comes to supplying the big retailers, size does count: “For most retailers, you have to have scale, particularly if you’re in one of the larger commodity areas. But even if the category you’re in is small, you still have to be a large player within it.”
The drawback, he added, is the bigger the category, the larger the customer, and the tighter the margin.
Being smaller does have everyday operational advantages, he said: “For a company operating in the smaller category, with turnover in the 10s of millions rather than 100s of millions, ownership is often closer to the businesses original roots.
“For quoted companies there are additional demands and requirements for you to run the business in certain ways, but if you’re still in control you can run it how you like, as long as you keep the bank manager happy.”
But while margins might be better in the smaller sector, the risks are far greater: “Having deep pockets is quite important. A little company doing £20m and operating on a margin of two per cent could be wiped out by one bad year,” said Giles.
Jonathan Smith, md of Axis Management Consulting,said: “I would concur size isn’t everything, but being a multi-product supplier is something retailers favour.”
He said the bigger players will generally be pure commodity suppliers and as such their financial performances would not be as good as the smaller companies going down the added value route. “As a result it is difficult to compare like with like,” said Smith.
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