Price wars force UK ingredients sales into decline

In the study, 200 companies were assessed on their individual and financial strength. While margins have remained steady, it was found that sales are decreasing on average by 0.8 per cent, with smaller companies being hit the hardest. Almost half of the companies analysed recorded a fall in sales, with an average fall of 15 per cent. Those companies that recorded an increase in sale, only averaged a growth of 10 per cent. Increasing Competition David Pattison, senior analyst at Plimsoll, told FoodNavigator.com: "The way we eat and the way we live our lives is changing, which has an automatic effect on the ingredients industry." Consumers are buying more prepared foods, and these are being produced by the larger companies who can fight for lower costs. Pattison said that while companies want to receive these big contracts, they can sometimes be a " poison chalice" as they restrict negotiations. As well as competition within the UK, major players have entered the industry on an international scale, producing at a lower cost and therefore adding pressure to the price wars. A time of change Other factors that have affected the industry include the poor weather the UK has experienced this year, destroying stock and affecting production. Because of this, Pattison explained that this is a time of limbo, with many changes expected in the coming months. Pattison advised that companies look at their costs and settle any debts because of financial uncertainties in the UK. Although it is not all doom and gloom for the food ingredients industry, he recommended companies be prepared in this time of change. Discrepancies between companies The report showed that small companies demonstrated the most erratic sales performance, peaking six years ago with a median sales growth of 12.7 per cent, and dipping to -4.1 per cent in the latest year. The sales performance of companies has varied significantly in the last 10 years, highlighted by the difference between the highest performing and the lowest performing companies. Combined growth in this 10-year period has been 40.4 per cent, meaning if a company had a sales turnover of £1m 10 years ago and it went on to achieve industry average sales growth in each of the last nine years, it would now have a turnover of £1.4m. Of the companies whose sales are falling, over three quarters took action to reduce their assets. Over half of the companies assessed suffered decline in sales return on total assets this year. Top five performing ingredients companies Using the measurements, Plimsoll determined the best companies within the food ingredients industry, with the strongest percentage sales growth and rising financial strength. The top five were: Gross margin In the last 10 years, gross margin has remained fairly level. Yet the gap in the levels of gross margins has also remained steady. Currently, at an average company in this industry, gross profit margins represent 21.2 per cent of sales. Despite this average, 12 per cent of companies recorded a gross margin over 50 per cent. In general, the smaller companies are outperforming their larger counterparts. The average gross profit margin of a smaller company is 33.1 per cent outperforming their larger counterparts who manage 20.9 per cent. Over 40 per cent of companies increased their margin in the latest year. The same amount reported a fall in margin. In general the larger companies are more efficient in generating sales from their asset base than smaller companies. Larger companies are averaging £2.09 for every £1 invested.

Price wars force UK ingredients sales into decline

Sales in the UK food ingredients industry are falling on average as a result of increased competition, both domestically and internationally, according to a new market report by analysts Plimsoll.

Related Topics