Surge in food SMEs in significant financial distress

By Rod Addy contact

- Last updated on GMT

SMEs in all sectors are struggling financially
SMEs in all sectors are struggling financially

Related tags: Finance

The amount of small and medium-sized enterprises (SMEs) in food and drink manufacturing in significant financial distress has risen by 35%, comparing the first quarter of 2020 with the first quarter of 2021.

That's according to Real Business Rescue. In addition, looking at the same periods, the amount of start-ups in the sector in the same position doubled, rising by 27% between the last quarter of 2020 and the first quarter of this year. The data is derived from corporate restructuring firm Begbies Traynor's Red Flag Alert research.

In terms of how the sector compares to other industries, taking the first quarters of last year and this year, SMEs performed better than most.  Industrial transport and logistics was the worst hit, followed by real estate & property services and financial services.

Across the board, there was a marked increase in SMEs in significant distress in the past two quarters, but food processors showed a bigger increase than most industries.

Furlough scheme winding down

Commenting on the disturbing late surge, Shaun Barton, national online business operations director at RealBusinessRescue.co.uk, told Food Manufacture​: “For the past year there will have been many businesses delaying the inevitable through government help. The furlough scheme is winding down and the realisation of having to pay back government loans, which are not grants, is dawning on smaller businesses.

"This is one of the many reasons we’re seeing trouble coming to a head. We fear that there is more to come as the banks of the dam of distress are breaking and there will be zombie companies, that have been on the brink for many years, now left in an insurmountable position.

"This will inevitably cause some initial job losses. However, it could have positive effects in the longer term as viable, promising companies that can create more stable jobs take their place by sweeping up the business they leave behind.”

Opportunity to grow domestic sales

Barton said food and drink manufacturers were in a relatively strong position, occupying an essential role in helping to feed the UK. Additionally, he said they had a greater opportunity to grow domestic sales as supermarkets faced overseas supply problems.

"However, this doesn’t mean that competition isn’t hard. While tightening on borders due to the pandemic and Brexit have increased opportunities they have also increased prices for the materials and made them more scarce.

"A rise in inflation this year has been attributed to a rise in food prices and there are further warnings of increases to inflation in the future. For food manufacturers a perfect storm of price increases is occurring with packaging materials, transport and food all on the rise.

"In the 12 months to April the Consumer Price Index has risen by 1.5%, a significant leap from 0.7% growth to March. The opportunities might be there, but only for those that can fulfil them.”

Administration not the end

That said, Barton was quick to stress that SMEs entering administration should not see this as the end of the road, but potentially as an opportunity for a fresh start.

"A restructuring through administration could help create a stronger company that can thrive in this new climate that we face by identifying profitable or promising parts of the business to grow and others to wind down.

"Surprisingly for some, we’ve found that investment opportunities are rife at this time so exits are possible.”

Related topics: Start-ups, Business Leaders

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