Lockdown fears increase for foodservice suppliers

By James Ridler contact

- Last updated on GMT

A nationwide lockdown could spell doom for foodservice suppliers already hit by coronavirus restrictions
A nationwide lockdown could spell doom for foodservice suppliers already hit by coronavirus restrictions

Related tags: coronavirus

A nationwide lockdown would put foodservice suppliers at risk and quash further mergers and acquisitions (M&A) activity in the food and drink sector, according to financial adviser Oghma Partners.

The fresh warning follows increasing speculation that Great Britain could be plunged back into national lockdown as the number of COVID-19 cases rise.

Mark Lynch, partner at Oghma Partners,​ said lockdown restrictions would likely re-emphasise the earlier trends seen in the spring, such as sales growth for direct-to-consumer and supermarket companies.

“We have already seen a significant shift in consumer behaviour which has boosted growth for those companies in Q2 ​[the second financial quarter] and to a lesser extent in Q3 but which now look to boost growth again in Q4,” ​he continued.

‘More business will go bust’

“However, this does mean we are likely to see more long-term problems for food-to-go and foodservice providers that are unable to service clients as per normal. The sad fact is that the longer the restrictions are imposed the more end-user businesses will go bust.”

Lynch pointed to manufacturers supplying to these industries as being some of the worst affected by a proposed extension to current lockdown restrictions.  

He also highlighted an overall decrease in food and drink M&A activity between May and August​ (up 59.9%), while the number of distressed deals increased – 27% of the total within the sector.

‘Mixed picture’

“Looking through to the rest of the year we expect this trend to continue. 2021 could see a mixed picture however,” ​Lynch added.

“With distressed deals a continued feature of activity and in addition we may see businesses that have come to market in the final third of 2020 from owners hoping to avoid any increase in capital gains tax help improve activity levels and reverse the negative deal volume trends of the last three quarters of 2020.

“Overall our expectation remains that it won’t be until Q2 2021 that we will see year-on-year increases in M&A activity.’’   

Meanwhile, the Government stands accused of being unprepared for Brexit and a second wave of the novel coronavirus​ by a parliamentary committee report as new lockdown regulations threaten to force suppliers to cease operations.

Related topics: COVID-19, Operations

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