Almost a quarter of the top 1000 fresh produce companies in the UK are finishing the year in financial difficulty with a prolonged period of consolidation according to new analysis.
Some 244 companies in the market are finishing the year amid financial problems with some companies described as “clinging on” before inevitably running out of time, according to Plimsoll Publishing’s yearly round-up.
The new 2010 edition of the Plimsoll Industry Analysis shows a buffeted market emerging from recession with a third of companies making a loss and one in three companies in financial difficulty.
David Pattison, author of the new Plimsoll Analysis, An assessment of the top 1000 companies in the UK Fresh Produce industry, said: “Having clung on through the bad times many of these struggling companies are going to run out of time and fail just before the recovery really takes hold. Sadly, some of them are just too weak to carry on and there will be a spike of failures in the New Year. On the flipside, their demise will bring a welcome reduction in competitive pressure for those left.”
But he adds that there are some positive signs in the industry: “A number of companies have managed to improve their performance in the last year. They are part of a band of 460 companies that prove success can still be achieved in the Fresh Produce industry despite difficult trading conditions. They also prove that bad companies fail in a recession; good companies simply do not. These companies will lead the industry out of recession with some smart acquisitions and maintaining their recent success”.
Pattison is also convinced the market is due a prolonged period of consolidation with the number of companies in trouble leading to heightened takeover activity with “too many companies chasing weakened demand it is inevitable that there are likely to be a number of high profile mergers and takeovers”.
Pattison also questioned “reckless companies” that continue to chase sales despite mounting losses saying there is “a group of 133 serial loss makers” still operating in the market making consecutive losses “blatantly chasing sales or just trying to maintain their market share”.
But Plimsoll’s views are by no means unanimous. Phil Jackson, head of food at Grant Thornton, told FPJ 2009 was actually comparatively successful for the industry: “After two devastating years with floods and rapid inflation this has been a good year with the exception of importers and organics companies.
“There is clearly an underlying trend of consolidation and a spread of acquisitions and insolvencies but this is an ongoing trend. The larger scale players who have diverse custom, added value and lead their categories will have the best chance of survival.
“Businesses fail because of a lack of cash, you can carry on making losses ad nauseam if you have cash but now the banks are being more circumspect which puts pressure on this. However, the industry is quietly optimistic for 2010 as long as they cut costs and keep demand high.”
Nigel Jenney, chief executive of the Fresh Produce Consortium, agrees. He told FPJ: “The industry is dynamic and constantly changing, consolidation is not new and businesses are continually changing and entering the industry.
“I think we need to focus on the positives of an increased focus on healthy eating and valued products. One thing that the industry does find frustrating is the lack of support from the banks and credit providers removing insurances for perfectly reputable companies.”
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