The number of food and drink manufacturing companies in the UK entering insolvency has spiked, showed a recent report, stating most such distress was caused almost exclusively by their suppliers demanding price rises.
According to research by procurement and supply chain management consultancy INVERTO, food and drink manufacturing companies entering insolvency by 108 per cent to 287 in the year to the end of June 2023.
It has been widely reported that food and drink companies have struggled with significant inflation of supply costs, which have eaten into their profit margins. With weakened profits, many businesses have also struggled to service debts as interest rates rose.
Drink manufacturing companies saw a 123 per cent surge in insolvencies, from 39 in the previous year, to 87 in the past 12 months. Food manufacturing companies have also had a difficult year, with a 102 per cent increase in insolvencies, from 99 in the previous year, to 200 in the year just gone.
Mohamad Kaivan, Managing Director at INVERTO, suggested that as costs begin to fall, food and drink manufacturing companies should be renegotiating prices with suppliers. Notably, the price of ingredients for many manufacturers, like dairy products and flour, have fallen. However, he noted that those price reductions will not help food manufacturer’s margins until they ensure those cost reductions are passed on to them.
Kaivan stated that food manufacturers should ask their suppliers for greater transparency over their costs. Understanding the structure of their suppliers’ costs can help procurement teams to negotiate fairer prices and accept pain sharing if necessary.
Additionally, businesses that secure ‘customer of choice status’ with their strategic suppliers can benefit from greater protection in times of scarcity.
“The year has seen a sharp rise in food and drinks manufacturers suffering from financial distress caused almost exclusively by their suppliers demanding price rises. Some of those price rises have been justified, but a lot of those price rises haven’t.
“While businesses should look to take advantage of decreasing prices, they also need to be preparing for future risks that could potentially impact their businesses. This often requires a rethink of their strategies and ways of working with their suppliers to ensure they can improve their future resilience to potential supply shocks,” Kaivan concluded.