Insolvencies in the UK fresh produce market are set to soar, as one major UK supplier warns that retailers must pay the right price to ensure the market remains a destination for growers worldwide.
The latest report from Plimsoll Publishing has found that there are 143 companies at a high risk of failure in the fresh produce trade.
Senior analyst David Pattison said they could survive, but must start to fix their problems immediately. He said: “The first issue is to understand the extent of the problems the company is facing… A critical factor is to understand the key measures to monitor your business in order to pinpoint any decline.
“Our analysis tells you instantly where the company is strong and what its weaknesses are, so that a clear set of turnaround targets can be put in place. Companies are made aware of their problems sooner and the management then has more time to put a survival plan in place and stave off the administrators.”
Pattison believes there are three options for those under severe financial pressure and trading their way out is the least likely in the prevailing climate.
He said: “Despite the doom and gloom, selling the company or looking for an investor should not be ruled out. These 143 companies are very vulnerable to an aggressive takeover, but in my view there could be great benefit in selling up. A new owner would give the company time and resource to turn their performance around.”
The third option is to cut costs. “This is not easy,” admitted Pattison. “Internally, this will not be well received as job losses will generally be part of the plan. But the objective must be to reduce the level of debt and get the business back on track.”
Meanwhile, Martin Dunnett, trading director at Capespan Ltd, believes that there will be more bankruptcies to come in the UK trade over 2009 and that retailers need to make some changes.
He said: “Fruit remains a must-have product. The problem is not consumption, but the retail environment, which has value aspirations that are out of line with production costs. As a result, we have seen that certain fruits have not been available recently.”
Dunnett says that no one in the middle of the supply chain is making any money as importers feel the squeeze. “Both the weak sterling against the euro and low producer returns have dealt UK retailers a double whammy,” he said. “Before Christmas retailers offered exciting fruit promotions, but it was really a different story after Christmas when deals were renegotiated.
“Retailers have come to realise that economic circumstances dictate an increase in fresh produce prices. Price squeezing simply cannot continue. Retailers have to pay reasonable fresh produce prices if the UK is to remain a target market for producers throughout the world.”
There are signs that the message is getting through, with industry estimates of a two per cent drop in volume sales of fresh produce over the last month and a three to four per cent increase in value. But there is still some distortion in the market as retailers seek to offer exceptionally cheap lines, such as 50p packs of oranges, while the rest of the category is having to show some inflation to ensure costs are covered.
But there are some positives, Dunnett is keen to point out, and “selling health” is enabling the industry to weather some of the financial storm.
“The promotional lines are good for boosting consumption, but we have got to say they need to be part of a strategy so that there is a balance between promotion and people not losing confidence in the UK market,” he said.
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