Organic brand Babease is the latest challenger brand to fail after burning through a £5.1m investment in just four months.
The babyfood maker appointed insolvency specialist FRP Advisory as administrator on Thursday (21 November) but will continue to trade as a going concern as a result of a pre-pack deal with current owner Amitis Partners.
A statement from FRP said Babease had struggled with “a period of unsustainable working capital pressures”. Amitis ploughed £5.1m into Babease in August to maintain rapid growth.
It comes as pressures on the industry intensify, with low growth, retailers squeezing margins and political uncertainty combining to create challenging conditions.
The latest Begbies Traynor Red Flag Alert showed a 9% rise in the number of food manufacturers in significant financial distress in the third quarter of 2019, compared with a year earlier, an increase from 180 to 196 businesses.
The Babease administration follows smoothie maker Savsé and boozy ice lolly brand Pops also hitting the rocks in the past two months, with both challenger brands collapsing as a result of mounting losses and cashflow issues.
Life as a challenger brand is anything but easy. Just ask Savsé
“New food and drink challenger brands come flying into categories and they just burn through cash without making any money,” an industry CEO told The Grocer. “There is this mentality that comes from the US where new brands think they can raise cash and go on this growth charge, but actually it is a long, old road to success,” he said.
“It isn’t that easy because what you need is scale and that is difficult in small markets that are hyper-competitive.
“And then there are a lot of bad commercial deals with retailers, who are just squeezing businesses. Brands are spending too much to either get into retailers or spending too much once they are listed. And, on top of that, a lot of these challenger brands employ too many staff for their size.”
Babease Ltd and sister company Brecon Foods Ltd - which manufactures the branded veg-focused babyfood pouches and own-label products for the discounters in Wales - filed a notice of intention to appoint an administrator on 11 November, as revealed by The Grocer earlier this week. Both companies entered administration on 21 November and transferred back to Amitis in the pre-pack sale.
Babease, founded in 2015 by chef Tom Redwood, has grown rapidly after winning nationwide listings with Tesco, Waitrose, Boots and Superdrug, as well as being stocked by Amazon and Ocado. It employed 60 staff.
However, combined losses totalled more than £5m between April 2017 and December 2018, accounts at Companies House showed. Babease does not publish revenue figures, but annual sales are understood to be less than £2m.
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