The fresh produce sector is ripe for further consolidation, as pricing pressure from the major retailers continues to take its toll.
Speaking to members of the Chartered Institute of Marketing’s Food, Drink & Agriculture Group last week, Phil Jackson, head of the food sector at analyst Grant Thornton, said: “Retailers’ own brands dominate fresh produce, meaning companies do not have a lot of differentials; and that brings pricing pressures from retail.
“There has already been a lot of consolidation in produce and there is more to come, as there are too many players in the market.”
Grant Thornton’s Food Consolidation Index 2008 rated fresh produce as ‘very high’ in its category consolidation ratings, along with meat, fish and poultry. Further consolidation in the produce sector is unlikely to take place at grower level, predicted Jackson, but rather within marketing and packing activities.
In the last three years, the report revealed, there have been 450 insolvencies and 260 takeovers in the whole UK food and drink sector.
“No other country in the world has such a degree of retailer pressure, where the top four supermarkets control almost 80 per cent of the market,” said Jackson. “That means a lot of suppliers have high customer concentration and there is ever-increasing pressure on pricing.
“Too many fruit and vegetable businesses have grown as a result of being in bed with one retailer, which is a risky business,” he added.
Over the last 10 years, costs for manufacturers have gone up on an annual basis, but grocery multiples have demanded price decreases, said Jackson. “Recently, one of the big four told its suppliers it would start a weekly e-auction, whereby chosen companies would submit bids on a weekly basis as a way of ‘establishing the best and most competitive producer’ - which clearly highlights the cost pressures and demands of this challenging marketplace,” he said.
However, overseas ventures may prove beneficial to the produce industry in the future, and Jackson highlighted Portuguese firm RAR Group’s takeover of watercress and prepped salad specialist Vitacress this year as a clear example. “This sale represented an opportunity for both companies to rationalise and take out costs, and also ensure continuity of supply.
“There have always been lots of joint ventures in the produce industry and these are now in some cases becoming full ownerships. There is a lot of overseas interest, not just in UK brands but in UK food, and this will continue,” said Jackson.
But his key message for food and drink businesses was that they cannot afford to stand still. “You need to look at what your competitors are doing - will you be a leader or a fast follower?” he said. “In short, will you eat - or be eaten?”
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