Food Companies at Risk of Collapse – Impact on Wholesaler Market

It’s no secret that the number of food companies at risk of collapse has gone up over the last few months. Indeed, Begbies Traynor, insolvency specialists have reported that the number of food companies at risk of insolvency has risen from 2,878 in 2013 to 4,550  in 2014.

This is largely due to the pressures put on them by the supermarkets as the supermarkets in turn face competition from the discounters. Thus, it is inevitable that some will not survive, and this is happening all too swiftly in today’s very competitive market.

What kind of affect can this have on the wholesale and foodservice market? Well, for a start the foodservice and wholesalers are buying their fruit, vegetable and dairy product supplies from the farmers and food suppliers who are receiving less and less revenue from the supermarkets. Without covering their costs, their will in turn collapse and with it, all the other businesses who they supply will be affected.

This means that with fewer suppliers, supply is reduced and the prices of the products will go up, affecting the wholesalers and the end customers too.

Additionally, with the collapse of many suppliers, the wholesalers will need to find alternative sources quickly and hence may need to go abroad to secure the right prices or look at more expensive alternatives at home. This may have an impact on the quality of the produce and the cost too. It’s a balancing act that needs to be correctly addressed as there is a knock on effect for all.

Wholesalers and food service distributors should have contingency plans in case this does happen, to ensure that their own service to the customer is not affected. We hope as many food suppliers as possible are able to survive, with the help of Government grants as the problem is not just for them, but the whole grocery industry as a whole.

Our Forecast for 2015

It’s been an interesting year for wholesale and foodservice sector in 2014 with a strong performance and little of the drama that has forsaken the supermarket industry this year.

The year has been one of transition from the traditional cash and carry model to one being dominated by internet and click and collect sales. We see this trend continuing into the next 5 years with steady growth year-on-year.

With internet sales having reached over £1bn this year with big contributions from both Booker and Bestway, the convenience of ordering online is becoming a stable feature for customers. This still only represents 4% of the overall market, and so there is still room for much further growth to be seen in internet sales sector. We forecast the market grow to 10% within the next 10 years.

Mobile apps have also started to emerge with a new app created by Bestway as one of the first apps in this sector. Time will tell as to how popular mobile ordering will become, but we forecast that it will continue to grow as smart phones become a mainstay of the ordering market.

With all this online presence continuing to grow, data will become increasing more important with savvy wholesalers making decisions based on the data that they have in real-time to target new and existing customers with special offers etc. We see the emergence of data as the next big change in wholesale and the wholesalers who can adapt the quickest in the next 5 years, will enjoy the biggest growth.

We also see the market becoming more and more competitive as the discounters enter the convenience store market. With lower prices and a different range of brands, market share will be lost to the discounters which will have an added affect on wholesalers too.

Overall, we see opportunity in 2015 for wholesalers to adapt further to technology through online websites, mobile ordering and employing big data techniques to engage customers and refine their price strategies going forward. Those that can adapt the quickest to changes in the market will have a competitive advantage in the coming years.

We wish you all a Happy New Year and prosperous 2015!

Supermarket Price Wars Affect on Food Producers and Wholesalers

It’s been no secret that there’s a price war going on at the moment between the major supermarkets due to the attack from the discounters. This may be good news for consumers, with lower prices in store and deflation of food and drink prices, but not so good news for the food producers.

Research from Moore Stephens has shown that 146 food producers went into administration this year, compared to 114 last year, which is a worrying sign.

With the supermarkets putting added pressure on supplier costs, this has meant that the margins made by the supplies are far less than before, and can tip the supplier into administration. This coupled with the long payment terms of the supermarkets means that the suppliers have a cashflow problem, and end up running out of cash.

Are we due to see the effects of this in the wholesale market? At the moment, there may not be a price war waging between the wholesalers, but the food suppliers also supply to wholesalers and food service companies too. Thus, with fewer suppliers in the market and less competition, this may lead to higher prices in the future too.

It will be interesting to see how prices will be affected in 2015 with fewer food suppliers, and the impact of the discounters moving into the convenience store sector too. 2015 will certainly be an interesting year in the wholesale market!

Poundland Sees 12% Rise in Profits – Should you be stocking Value Brands?

Poundland this week reported a 12% rise in profits for the half year to £9.3m, and like-for-like sales were also up 4.7%.  This clearly suggests that shoppers are going for the discount brands, and looking to get their shop as cheap as possible. What impact does this have on the convenience stores in local areas?

Well, for a start, consumers are becoming more price sensitive and so are trying to save money at any suitable opportunity. This puts pressures on the price competition between convenience stores, Sainsbury Local, Tesco Metro etc.  and the discount stores too.

So should the local convenience store be selling more of the low value branded goods, then the branded goods themselves E.g. should a local convenience store sell own label tomato ketchup rather than Heinz ketchup? Or are these customers still going for the branded goods, and are only after the convenience? And with limited shelf space, then the shop owner has to be very picky about the products that they sell too, so the choice is even more important.

It’s very difficult for the local convenience store to compete just on price – any Sainsbury’s Local or Tesco Metro can blow them away on the price, with their enhanced buying power. The main reason why a customer is coming into the convenience store is literally for convenience – if they went to a Tesco Metro then they would have to walk there, try and find the product, walk around the large store, queue up to pay etc, which takes time. To buy something simple like a bottle of tomato ketchup, then it is easier to go to the local convenience store and be in and out in a few minutes.

Hence, as speed is the key, seeing the product the customer wants to buy very quickly is important. Hence, the brand is very important in this regard as the customer can identify with the brand quickly and easily, and make a choice easily.

Thus, for this reason we recommend that the convenience stores continue to stock the popular brands and stock own label products for non-key items e.g. custard cream biscuits.  A focus on the gross margins of the products and the convenience aspect will ensure that convenience stores will continue to flourish and be a central point for the local community for the foreseeable future.

Lidl and Aldi Enter Convenience Store Market – a New Threat for Retailers?

Both Aldi and Lidl have announced that they will be opening up convenience stores to compete with  Tesco Metro and Sainsbury Local which is big news in the convenience store market.

Aldi trialled their first store in Kilburn which has proved to be a great success, and Lidl is to follow with a store in Kentish town. The convenience store market has been one of the few growth areas for the supermarkets, with all keen to continue expansion too.

However, this could come to a pre-mature end with the emergence of the discounters into this market space. How will this affect the current crop of independents and retail outlets already there, and in turn affect the larger wholesalers too?

With the emergence of cheaper goods from Aldi and Lidl in a convenient format, this will have an impact on the current crop of Sainsbury and Tesco convenience stores, as well as all other independents. Customers are going for convenience and a cheaper price, and hence the new Lidl and Aldi stores will experience more customers which will be taken at the expense of the existing independents and supermarket chains.

As the independents buy their goods at the large wholesalers e.g. Bestway and Booker then the sales of these wholesalers could drop too, as they are dependent on the convenience store trade. Those wholesalers who have a large food service offering will see less of an impact than those who rely on convenience stores.

It’s interesting times for the retail and wholesale market and there could be some major changes happening over the next ten years in this market place.

Tesco Reported £250m Profit Error – A Warning to Wholesalers?

As you must know by now, Tesco had a disastrous week recently, reporting a £250m profit error and seeing its sales crashing to 11 year lows. How such a big retailer could have got into such a mess, and is this a time bomb waiting to explode for other retailers, and indeed wholesalers too?

To see how this loss came about, we need to understand where this profit adjustment came from.

In most retailers and wholesalers, the big manufacturers e.g. Kellogg’s, Coke, Gillette pay them to help fund promotions to shift their goods. In this way they may contribute to advertising campaigns, special displays, or when items are discounted e.g. from £1.99 to £1.49. Here the suppliers typically pay the difference.

Most of this is linked to performance, so the rebate may be paid for the number sold. e.g. a penny in the pound for every 100 items sold.

Tesco had to estimate how much rebate it would receive from suppliers by forecasting sales. If this was too high, then the rebates are more than collected and the profit is overstated.

This rebate system also is prevalent with the wholesalers, and so if this could happen in the largest supermarket, can it also happen within the largest wholesalers too?

The answer would depend on how they book these rebates in their accounts, and how good the Finance Director is at his job. Tesco was in an awkward position as it didn’t have a Finance Director since April, and so this is where the error has occurred as nobody was taking control of the situation. Now may be a good time for all existing wholesalers and supermarkets to review their accounting practices in regard to the rebates received from manufacturers.

Booker Reports Strong Growth in Sales – What is the Impact of this on the Wholesale Market?

Booker last week reported good sales growth over the  quarter, with Non-Tobacco like-for-like sales up 3.1 percent for the quarter. Sales growth for all stores including the Makro stores was 0.1% up on the same period last year, for the 12 weeks to 12th September 2014 – a pretty solid result.

However, Makro endured a 10.8% decline in its sales for the quarter, as it disposed of its unprofitable categories.

Shares in the company were up 4.5% to 121.5pence on morning on trading after the announcement and continue to trade well at 123.55 pence by the end of last week (26th September).

What does this mean for the wholesale market as a whole? Has Booker taken share from the other wholesale players? Or is this the result of real growth in the market, as a result of more convenience stores being opened?

The number of convenience stores, bars, restaurants, kitchens and caterers in this country has largely stayed consistent at around 450,000. There hasn’t been significant growth in the number of convenience stores which is the largest customer base of Booker and the largest part of the market with approximately 250,000 independent convenience stores in the UK today. Thus, the growth comes largely as a result of an improved offering which existing customers find very attractive.

The Makro acquisition has added sales to the Booker group, as well as enhanced synergies from added purchasing power etc. However, as it was already a loss making business before the acquisition, there is still a lot to do by reducing the categories which are loss making e.g. electrical, fashion etc. and so we can expect to see further improvements in profitability over the coming quarters too. By focusing on their core customer group and market lines Booker will be able to improve the supply chains in those areas.

By consistently delivering high levels of customer service and competitive pricing levels of promotions on the key product lines, Booker looks set to continue its strong performance under the leadership of Charles Wilson, Booker CEO.

Scotland Voted ‘No’ to Independence, what is the Impact on Wholesale Prices?

It was a big day for the UK on Friday morning, with the results of the Scottish Referendum. With Scotland voting ‘No’ on leaving the UK, it was one of the biggest days in the last 300 years in the history of the United Kingdom, and not to be repeated for a long time too!

So how does this affect wholesales prices of your food and drink items, I hear you ask? Well, we can look at it both in terms of a ‘Yes’ and ‘No’ to Scottish Independence and see what the affect’s on the wholesale prices would have been.

Today, all trade freely moves between England and Scotland in the UK. The big wholesalers have their headquarters in England, and run their Scottish stores usually as a subsidiary of their UK branch and so the stores are just treated exactly the same as the English stores with the same products, similar prices and the same distribution network.

However, if Scotland had decided to go independent, there would be a new border created between England and Scotland, with a new currency too, as the pound most likely would not have been allowed to continue as a currency in Scotland. This would have had a large implication on the prices charged to customers and the transfer of goods between the two countries.

Prices would be open to a foreign exchange rate, and we forecast that prices would have increased in relation to those in the UK, with the exchange rate fluctuating with the new independent status of the country. Additionally, transferring stocks to the ‘new Scotland’ would have incurred further charges with import duties going up, especially for Tobacco and Alcohol as the ‘new Scotland’ tries to raise funds to support their new independent country.

Additionally, the cost of distribution may be affected too. As Scotland is a separate country, they would be able to choose which taxes to apply to petrol prices in the country, making distribution to stores more expensive if petrol prices were to rise with the higher taxes.

All in all, it was a beneficial result for all wholesale businesses up and down the country that Scotland did not vote ‘Yes’ to independence and with this uncertainty removed, small businesses can now get back to working on improving their own sales, profitability and growth – the real issues that they face today, rather an issues brought about through decisions outside of their control.

ITP Analytics Launch

After many months of research, programming and data gathering, we launched the Improve That Price Analytics online reports. The report provides users with live data on the Foodservice Wholesale and Cash & Cary market. These reports can be viewed by category, brand or type. The data can also be filtered to show only the Price Marked, Promotions or the Multi-buys. The site also features the price history of products, is very user friendly and you can have a two weeks free trial at  improvethatprice.com/analytics. For further information email Faisal on faisal@improvethatprice.com.

Improve That Price Analytics

This week, after many months of research, programming and data gathering, we are launching the Improve That Price Analytics online reports.

The report provides users with live data on the Foodservice Wholesale and Cash & Cary market. These reports can be viewed by category, brand or type. The data can also be filtered to show only the Price Marked, Promotions or the Multi-buys.

The site also features the price history of products, is very user friendly and you can have a two weeks free trial at  improvethatprice.com/analytics.

If further information is required then please email Faisal on faisal@improvethatprice.com.