The number of fresh produce businesses in financial straits is rising steadily as the effects of the credit crunch and UK retailer price wars make themselves felt, according to a leading sector business adviser.
Duncan Swift, right, joint head of the food and agribusiness recovery group and a partner of Grant Thornton UK, told FPJ: “We are already seeing an increase in the number of fresh produce businesses, both large and small, experiencing financial difficulties and seeking our assistance to alleviate those difficulties.
“Banks are reviewing their credit exposure, as you would expect in any economic slowdown or downturn, in those sectors where adverse economic circumstances will have greatest impact. From what I and my team have seen, much of the food supply chain and particularly the fresh produce sector is regarded by the banks as being at high risk of adverse impact.”
Swift added this is because they are working against a backdrop of substantial input cost increases and a relative inability to pass this on to consumers due to supermarkets’ continued price wars… and their approach of keeping as tight a lid as possible on price increases to consumers.
But Swift has advice for fresh produce businesses as they start to feel the squeeze to maintain tight credit control; to analyse and understand each customer’s contribution to the business, and look seriously at pulling out of unprofitable or difficult customer relationships.
“It may hurt financially in the short term, but this may mean that you avoid financial disaster in the longer term,” said Swift.
“Say ‘no’ nicely if a buyer is pushing you into a position where supply will cause you an unacceptable loss, and understand each of your SKU’s cost of production and delivery - avoid product proliferation and concentrate your efforts on those products that yield the best profitability and cash flow.”
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