Insolvencies of UK food and drink manufacturing companies surged 108% in the year ended June 2023, according to new research from supply chain management consultancy Inverto.
The rapid rise in costs has been a key driver, with 287 businesses entering insolvency as a result – up from 138 in the previous year. This substantial inflation of supply costs was mainly driven by the war in Ukraine, particularly grains, cereals and products that require significant fuel outlay to source.
Drinks manufacturers saw the biggest rise in insolvencies, up 123% from 39 in the previous year to 87. Meanwhile, food firms experience a 102% surge in insolvencies, from 99 in 2022 to 200 in the past year.
Negotiating with suppliers
Commenting on these findings, Inverto managing director Mohamad Kaivan said that as price deflation is now beginning to occur, food and drink manufacturing companies should be renegotiating prices down with suppliers.
Notably, the prices of ingredients for many manufacturers like dairy products and flour have fallen – however, those price reductions will not help food manufacturer margins until they ensure those price reductions are passed on to them.
Kaivan urged manufacturers to ask their suppliers for greater transparency over their costs, as a better understanding can help procurement teams to negotiate fairer prices and accept ‘pain sharing’ if necessary.
Financial distress
“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,” he continued.
“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.”
Additionally, businesses that secure ‘customer of choice status’ with their strategic suppliers can benefit from greater protection in times of scarcity.
With news of administrations, proposed closures and complete shutdowns haunting the headlines, Food Manufacture takes a deep dive into the drivers, whether this is a trend set to last and what businesses can do to turn things around.
