The supermarket price war and the slump in commodity prices have resulted in sales at the UK’s food and drink producers falling for the first time since 2001.
The OC&C Top 150 Index published in The Grocer this week, shows sales of the 150 biggest suppliers in UK food and drink dropped 0.1% in 2015 as deflation continues to rage.
The figures signify a marked performance downturn even before the shock of Brexit, following growth of 2.9% in last year’s report and 5.8% in 2013, and reflect the fierce competition among supermarkets, with deflation rather than any volume declines the primary driver of the sales slump. Annual grocery deflation topped 3% in June according to The Grocer Price Index, supported by falling commodity prices and input costs.
Biggest movers
Finsbury Food Group
Position: 66 (+16)
Sales: £257m (+45.8%)
Growth super-charged by acquisitions of Fletchers Bakeries and Johnstone’s Just Desserts to diversify product range and build foodservice sales.
IPL
Position: 82 (+28)
Sales: £198m (+44%)
Asda-owned International Procurement & Logistics has increased its sales participation in vegetables and potatoes, while growing its business with other Walmart companies.
Wellness Foods
Position: 88 (-23)
Sales: £170m (-29%)
Falling revenues reflect sales of Rowse, Dorset and Orchard House Foods in recent years. Its last remaining brand, Fruit Bowl, was sold off in August 2016.
Dairy Crest Group
Position: 19 (-7)
Sales: £949m (-28.7%)
Dairy Crest underwent a transformation to a spreads, cheese and dairy ingredients-focused business after selling its historic milk business to Müller.
Lower costs might have been expected to result in a boost to supplier profitability, but profit margins remained depressed as the benefits of deflation have entirely been passed on to consumers.
Margins across the Top 150 were 5.3% - well below the long-term average of 6.4% and close to the historic low of 5%.
“This year’s Top 150 shows the damage sustained deflation and the retail price wars have done,” said OC&C head of consumer goods Will Hayllar.
This low-growth environment has increasingly seen suppliers struggle to find cash to invest in their businesses, with capex flat at 3% of revenues and no change in absolute spend.
And limited capex and lack of top-line growth have meant return on capital employed across the Top 150 has plummeted to its lowest level in 30 years.
ROCE dropped one percentage point to 12.4% - well below its long-term average of 16.5%.
“With the industry in poor health the added uncertainty of Brexit could be seen as an unwelcome complication,” Hayllar added.
“However it will trigger changes in the industry dynamics and there are opportunities for those that capitalise on that to improve performance.
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