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Food wars

More than 100 food and drink manufacturers are at risk of collapse because of the brutal price war being fought between Britain’s major supermarkets.

See here

New research shows that the number of food manufacturers in “significant distress” rose by 92pc to 1,410 businesses in the final quarter of 2014.

Julie Palmer, partner at Begbies Traynor, which compiled the research, warned that more than 100 of these companies will fall into administration by the end of the year unless supermarkets treat their suppliers “more fairly” and trading improves.

For many of us who have long experience of credit management, there was always a gentle rule that businesses in the food industry were generally seen as a relatively safe bet. The reasons are obvious. Food is virtually recession proof and once a brand has been established then it was difficult to see what could go wrong. Unfortunately this is fast becoming a rather old fashioned view and food suppliers could soon be joining mid size retailers, construction companies and airlines as being established within the high risk category.

The linked piece is a little alarming and certainly Red Flag Alert does have a good reputation in the market but there is another side to this coin which I will come to

More pertinent I felt were the remarks from Atradius, the credit insurance providers

Atradius claimed suppliers to the “Big Four” risk being delisted and having their payment terms extended as the supermarkets shrink the number of products they sell and try to ease the pressure on their cash flow.

Many might ask how a number of the major supermarkets could possibly extend terms any further but I believe that this is the most likely initial impact.

Of course it is an impact that could lead to companies failing in the manner expected by Begbies but it should be remembered that food providers should be able to finance the debt relatively easily. Certainly it is an attractive sector to lenders and I have completed a couple of significant arrangements in this arena.

However the food market is significantly unbalanced. There are simply too many suppliers and too few buyers but not so few that this could ever come under scrutiny by the authorities. Frankly I cannot realistically see a solution.

So are the concerns real? I will just say one thing. I believe that the concerns over the risk are well founded but at the same time its never a bad idea to find your product in the media. Red Flag alert is a very good product but this is certainly a very decent piece of PR and well done to the agency concerned. I am sure that there are a number of suppliers at risk but I will also say that the number quoted is quite headline grabbing and perhaps just a little rounded?

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