Recent figures provide a stark warning for food producers looking to dine out with the big boys.
Over the last few years we have seen a few headlines about one small company or another being beaten up by a high street heavyweight. The reaction has generally been a sharp intake of breath and some limp promises by the powers that be to curb the unfair practices of supermarkets that often see small producers actually paying just to get their goods on the shelf.
Look out or check out
Isolated headlines about a pie maker in Leicestershire are quickly forgotten, however, a recent study by a top 10 bean counter reveals a widespread problem that will take a bit more than a threat to publish names on a naughty boy blacklist to overcome.
According to the study, 162 food production companies took the walk down insolvency lane last year, representing a trebling of the numbers in the sector from five years ago and 11% up on the same time the previous year.
Unfortunately, whilst smaller suppliers look on as their margins are squeezed to breaking point; the supermarket price war is unlikely to end any time soon. In fact even more sharpening of pencils is now likely following news that the UK’s two largest “discounters” are planning substantial country wide expansion.
Aldi eggs in one basket
The problem facing our small food producers of course is the fairly narrow route to market. As the same bean counter points out, 70% of what they produce is negotiated over only 10 buying desks across the country giving the UK’s top supermarkets overwhelming buying power not only on price but payment terms as well.
The rather sad sociological reality is that most of us don’t shop locally anymore because the supermarkets saw off the corner shops years ago. Of those ‘convenience stores’ that have reappeared the majority of them are owned by the big chains anyway with the same buyers responsible for filling the shelves.
Too Lidl too late
For many smaller suppliers that initial warm feeling of securing a deal with a prestigious name can quickly disappear when the small print about back-margins, marketing contributions and 120 day payment terms kicks in.
Realising that it might not be quite the golden egg originally imagined is one thing but funding such a long cashflow gap is quite another especially if the business is heavily concentrated on one customer.
Try something new today
Getting the right finance in order prior to signing a deal is crucial if problems further down the line are to be avoided and invoice finance provides a perfect solution. As an industry it is comfortable with longer payment terms and understands the issues faced by businesses heavily reliant on one customer.
It is also vitally important that smaller suppliers understand at the outset just what dealing with the big boys might mean and what it might actually cost them for the privilege. Because at the end of the day, when it comes to the supermarket sweep, there will always be two parties to the transaction; and both of them will be desperate to “live well for less”.