Market Monitor Food Italy 2017

• Growth above 2% expected in 2017 and 2018
• Fragmentation and small business size remain an issue
• The meat segment remains under pressure

The food sector is one of the most important Italian industries, employing around 385,000 people and generating a total turnover of more than EUR 135 billion in 2016, with both domestic and export sales being robust. There has been a modest increase in turnover since the fourth quarter of 2016 after years of rather stagnant domestic consumption. Many Italian food businesses (especially in the pasta and bakery segments) benefit from the strong international reputation of the “Made in Italy” trademark.

The Italian food and beverages sector value added growth is expected to increase 2.2% in 2017 and 2.4% in 2018, mainly driven by exports, while domestic demand is expected to remain stable. Profit margins are also expected to remain stable, although on a generally low level. Food producers and processors are often highly geared in order to maintain working capital requirements. However, due to its anticyclical business performance lending to the food industry remains appealing to banks and other financial institutions, enabling them to diversify asset investments.

Italian food sector production, processing and retail remain heavily fragmented, with a very competitive business environment. Even the biggest Italian food retail businesses are small compared to other major international players. The average size of food producers is typically small, which often hampers international expansion. At the same time e-commerce is increasingly challenging traditional brick-and-mortar food retailers. In order to consolidate their market position a concentration process among Italian food retailers is ongoing.

Since 2012 a new law (‘Article 62’) lays down a maximum payment term in the food sector of 30 days for perishable goods and 60 days for non-perishable goods. We observe that most businesses are abiding by those terms, while any requests for protracted payments are usually linked to liquidity problems of buyers. Food insolvencies have decreased in 2017, and we expect another decline of up to 10% in the coming six months.

Our underwriting stance for Italian food businesses remains generally open. However, we are more restrictive in the meat production and processing segment, as turnover in this subsector has been declining for several years due to changed consumption habits, while the financial situation of many buyers is rather poor.

We observe a high degree of suspected frauds in the food sector, mainly in the meat, fish and general wholesale segment. Therefore we take a closer look at the frequency of credit limit applications and the reliability of businesses management. Financial figures of individual businesses not aligned to average sector/subsector levels serve as a warning sign.