Opinion and comment from Food and Drink leaders.
Duncan Swift, Partner & Head of Food Advisory Group at Moore UK, Chartered Accountants has over 25 years’ experience helping food producers financially survive and thrive particularly in their dealings with supermarkets.
Duncan’s views on pre-supply trading terms and supplier/supermarket dealings were referenced in the Groceries Market Review 2006-2008 and ‘Tescopoly’ (Andrew Simms, 2007). More recently he has commented on supermarket payment behaviours; food producer insolvency rates; supermarket accounts; and authored the Evolving Risks in Global Food Supply report (2019) for Lloyd’s of London.
Duncan was the 2019/20 President of R3, the UK trade association for insolvency, restructuring and turnaround professionals. R3 stands for ‘Rescue, Recovery and Renewal’. He can be contacted on email: email@example.com
One business highlight of the last year
The pivot to on-line delivery has been astounding and it’s not just in groceries. Early last year I was preparing a presentation for the Westminster Food & Nutrition Forum on our Evolving Risks in Global Food Supply report findings. Within a week the conference was entirely rearranged to be delivered virtually on 25th March 2020. If you’re unfamiliar with Lloyd’s of London reports, take a look, they’re free to access and eerily prescient.
Two biggest challenges for the industry over the next year
- Retaining and motivating staff. Extensive restrictions on personal freedoms to curb COVID transmission come at a cost. Food production settings are particularly susceptible to outbreaks and requiring staff to comply with ever-changing restrictions does not stop at the factory gate. Virtual-leadership will not suffice.
- Getting paid in full and on time. Effective and timely credit control is vital. Pandemic demand and supply shocks have wrought havoc on businesses’ cash-flows, causing many to be unable to pay on time. Engage early with late-payers and work with them to agree payment plans to catch-up on arrears. Seek rectification via experienced commercial solicitors such as Roythornes and the Small Business Commissioner. If your customer’s late payment causes your business to become unable to pay its own bills on time it’s also worth having a conversation with a licensed insolvency practitioner with experience in your business’ sector.
Three forecasts for the food sector
- The most successful grocer retailers will be those that best combine existing bricks & mortar footprints with an on-line offering. Supporting evidence identified in our report includes:
- Walmart saying in 2017 “customers that shop [with] us in-store and online spend nearly twice as much as customers that only shop with us in stores”; and
- Ocado’s capital growth as a technology sales platform assisting bricks & mortar retailers to establish e-commerce services, rather than as an on-line only retailer.
Suppliers should plan accordingly, noting that whilst rapid sales growth has been seen on-line over the last year, physical stores retain scale with sales some six times greater.
- Realising value will be more difficult. “Anyone can sell a £1 for 99p” and we’ve seen many businesses do so in pursuit of turnover gains and to standout in price comparisons. However, if suppliers do not even try to identify and regularly articulate the differences of their offerings in terms of value and not price, it should be no surprise if target customers are not prepared to pay them a premium. It’s likely that post-pandemic inflation will raise the stakes to get this right.
- Food price inflation will drive more food fraud. Articulation of provenance provides opportunity to command price premiums whilst requiring the rigorous maintenance and enforcement of standards. Our Lloyd’s of London report identified increasingly networked, accelerated, integrated and consolidated food supply activities amplify the contamination and recall risks caused by food fraud, with costs predominately borne by processors.