£42bn tied up in inefficient working capital by grocery industry

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A staggering £42bn is tied up in “inefficient working capital” at the world’s top 40 food and drink companies, according to consultants REL.

Download the REL Food, Beverage and Retail Analysis (PDF) and the REL TWC Data Survey (Excel).

The cash could be freed up if the companies on the list chased invoices faster and squeezed supply chains harder, the capital management specialist claimed.

REL said Tesco was sitting on more than £6bn, while Sainsbury’s and Morrisons could realise more than £1bn each. It also said wholesaler Booker could generate an extra £271m.

On the supply side, REL said brewing giants SABMiller and Heineken could gain more than £1bn, while at the other end of the scale, British producers Cranswick could free up around £50m.

“There’s a potential £42bn tied up in working capital which could be released,” said REL senior consultant Anne Morgan-Smith.

“All food or beverage companies should look at all aspects of their working capital, starting with establishing whether or not there is opportunity to reduce inventory. This can be established by understanding your levels of inventory versus your peers.”

Morgan-Smith highlighted Greencore, Unilever, Metro, AB InBev and dairy Crest as companies that had freed up working capital over the last 10 years after “optimising sales to customer payment, supplier management and the supply chain”.

A spokesman for Dairy Crest said the company had cracked down on all three areas.

“A key part of Dairy Crest’s strategy is its focus on cost reduction,” said supply chain director Mike Barrington. “We set out to reduce our controllable cost base by £20m each year and regularly look at every aspect of our business so we can provide great value to consumers.”