Overtrading, or chasing volume at the expense of profit, could cause serious problems for the fresh produce industry, according to a recent report.
The latest Plimsoll financial analysis of 1,000 companies in the fresh produce industry shows that around 182 significant players are overtrading, and losing money as a result.
The industry analyst claimed that while the companies’ average sales growth rates are healthy, they are typically delivering margins of minus 1.3 per cent.
A further 424 companies are also under pressure and struggling to break even, according to the report.
It said: “Typically, these companies exist on tight and declining margins. Can they remain competitive while being squeezed by those overtrading?”
The remaining 394 companies remain unaffected by the issue, delivering margins of around 3.8 per cent. But with overtrading continuing, the report suggests these companies too may find themselves under increasing pressure.
David Pattison, senior analyst, said: “The good times could be passing, profits are certainly falling. Worryingly, over 40 per cent of the 1,000 companies assessed have seen their profits slump.
“In an attempt to retain sales, 182 of the companies have already started to overtrade blatantly, selling at a loss.”
If the trend continues, there would be two potential outcomes: “First, prices could fall across the industry as competition increases. Alternatively, the overtraders will simply run out of money,” he said.
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