Smaller companies are ripe for the picking as retailer power increases

By Elaine Watson

- Last updated on GMT

Related tags Fruit Takeover Strategic management

Deeply fragmented market has seen 450 businesses go to the wall

A surge of takeovers in prepared salads, frozen foods, fruit and veg, meat, fish and poultry firms is on the cards as retailers crank up the pressure on suppliers, according to a study of consolidation in UK food manufacturing.

Following big deals in sectors such as butters, spreads, sugar and canned soups in recent years, other categories were ripe for the picking, claimed the study for Grant Thornton and Inflexion Private Equity.

A huge number of small food companies was making only marginal profits and faced closure or takeover, said Jonathan Smith, md at Axis Consulting, which conducted the research.

In the snacks and crisps market, for example, own-label firms were squeezed between category leaders like Walkers and niche branded suppliers, he said.

Sugar confectionery was also “ripe for a well-funded consolidator”, said Smith. “And we would not rule out the possibility of a multinational player acquiring market share if a suitable business became available.”

More than 150 UK food manufacturers went into receivership and 300 were dissolved in the last two and a half years, said Smith.

The food sector was extremely fragmented compared to other industries, with just a handful of sizeable players and thousands of companies turning over less than £10m, he claimed.

Although many niche suppliers and some multinationals were enjoying strong growth and healthy profit margins, many mid-tier players lacked strategic direction and were unable to identify their competitive edge, claimed Smith. “People get so embroiled in the day-to-day running of their business and keeping customers happy that they are not thinking strategically about where they will be in five years’ time and how they are differentiating themselves in the marketplace.”

Hot favourites for takeovers

CategorySales (£m) Year-on-year Consolidation change (%)activity

Fruit and veg5,900+3.7Very high

Total meat, fish and poultry3,000+1.0Very high

Snacks and crisps1,700-2.3Very high

Frozen savoury1,100-3.5Very high

Prepared salads649-1.0Very high

Frozen desserts325-5.2Very high

Milk2,500+3.5High

Bread/morning goods1,800+5.0High

Cheese1,800+4.1High

Chilled ready meals1,500+6.6High

Sugar confectionery 1,200+0.1High

Ambient cakes872+4.7High

Fruit juices795+5.5High

Sandwiches635+7.7High

Cooking aids295+3.4High

Home baking264+17.3High

Source:AC Nielsen/Axis Management Consulting estimates for year to April 30, 2005

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