Market Monitor Food United Kingdom 2017

Monitor de Mercado

  • United Kingdom
  • Alimento

12 dic 2017

Due tot the inability to absorb higher input costs and increased pressure on margins, both payment delays and insolvencies have increased in 2017.

  • High pressure on margins due to increased import costs
  • Payments take between 45 and 60 days on average
  • Increasing payment delays and insolvencies expected

Market Monitor food UK 2017 pic1

While food demand and turnover in the United Kingdom remained robust in 2017, challenges for the industry have mounted due to its heavy reliance on imports (in 2016, 48% of food consumed in the United Kingdom was imported). The pound sterling devaluation since the June 2016 Brexit decision (about 15% against the euro) has increased the costs of commodities and food items for many British food producers and processors reliant on imports, raising their input costs and negatively affecting their margins.

Given the market power of major retailers and the ongoing price wars in the food retail segment, food businesses along the supply chain have faced major difficulties in passing on those price increases. Leverage against retailers is limited by the fact that the food producer segment is dominated by small and medium-sized players in a highly fragmented market.

While the initial effects of raw material price increases was partly cushioned by forward contracts and hedging mechanisms, food price inflation has increased in the course of 2017, and this trend expected to continue in 2018 as major retailers will try to pass on the increased costs to consumers.

Higher import prices have increased the pressure in an already highly competitive market, in which food producers and processors are driven to accept low or diminishing margins in order to retain relationships with their customers. In some cases this is destabilising businesses which accept contracts on poorer terms. We have already seen several instances of price erosion due to competitive tenders with contracts being secured in order to maintain volumes just to cover overhead, which is not sustainable in the long-term.

At the same time, export-driven food businesses benefit from the pound sterling depreciation - especially in the beverage segment, which is the only subsector that shows a positive trade balance (mainly due to whisky exports).  

Margin pressure and the weakness of the pound sterling have triggered a high level of M&A activity in 2017. Despite increased uncertainties after the Brexit decision British assets have remained attractive to foreign investors, and this is expected to continue in 2018. However, at the same time we observed that food businesses remain reluctant to invest, waiting for more clarity on the outcome of Brexit negotiations.

Market Monitor food UK 2017 pic2

Payments in the British food sector take between 45 and 60 days on average, and payment experience has been generally good over the past two years. However, due to inability to absorb higher input costs and increased pressure on margins, both payment delays and insolvencies have increased this year. We expect this increase to continue in the first half of 2018, with food business failures rising up to 5%, as the uncertainty around Brexit and its implications for cross border trade linger on (mainly concerning Ireland as the main trading partner on food). Some larger players continue to push the supply chain on price and longer payment terms, adding cash flow challenges to mainly smaller food businesses. It is expected that in a hard Brexit scenario the effect of the subsequent application of WTO tariffs on a low margin food sector would be profound.

That said, the British food sector has a proven history of navigating periods of lower profitability through stringent cost control measures, and there is still the chance that much needed price increases will be secured, leading to a potential improvement in profitability across the sector. The outcome of pricing negotiations, mainly between retailers and food producers, will largely determine the future non-payment and insolvency development in the sector. We expect retailers to increasingly pass on costs to consumers in 2018 in order to alleviate their own margin pressures. Despite the current troubles, access to external financing (e.g. bank loans) is still not restricted for food businesses, and asset backed lending facilities are extensively used in the sector.

For the time being, our underwriting stance remains generally open to neutral. Due to our extensive contacts across the industry an acceptable risk acceptance is anticipated, as we remain very close to the developments in the industry and vigilant to changing dynamics and challenges throughout the food supply chain.

Market Monitor food UK 2017 pic3

Our underwriting stance remains generally open for food retail, which mainly consists of strong players. The same accounts for the dairy sector which, despite some ongoing challenges, has shown an improved performance in 2017.

That said, we are more cautious with the meat and the fruit/vegetables segments, as both subsectors are highly dependent on imports, therefore experiencing elevated levels of input cost inflation and profit margin erosion. This is expected to continue as long as the exchange rate remains weak.

Both short firm fraud and impersonation fraud are ongoing issues in the British food industry, mainly in the meat and fruit/vegetables subsectors. We have observed  a marked increase in impersonation fraud cases in 2017, with overseas suppliers in particular being targeted.


Documentos relacionados

Disclaimer y Buró de Entidades Financieras

Este informe se presenta, con fines de información únicamente y no está pensada como una recomendación en cuanto a las transacciones particulares, inversiones o estrategias en modo alguno a cualquier lector. Los lectores deben tomar sus propias decisiones independientes, comerciales o de cualquier otro tipo, con respecto a la información proporcionada. Aunque hemos hecho todo lo posible para garantizar que la información contenida en este informe sea obtenida de fuentes confiables, Atradius no es responsable por los errores u omisiones, o por los resultados obtenidos del uso de esta información. En ningún caso Atradius, sus corporaciones o empresas relacionadas, afiliadas y subsidiarias, ni los socios, agentes o empleados, serán responsables por cualquier decisión o medida adoptada con base en la información en este informe, o por ningún daño directo, indirecto, especial, incidental o consecuente, resultante del uso de la información de las declaraciones hechas en este documento. BURÓ DE ENTIDADES FINANCIERAS ¿Qué es el Buró de Entidades Financieras? Es una herramienta de consulta y difusión con la que podrás conocer los productos que ofrecen las entidades financieras, sus comisiones y tasas, las reclamaciones de los usuarios, las prácticas no sanas en que incurren, las sanciones administrativas que les han impuesto, las cláusulas abusivas de sus contratos y otra información que resulte relevante para informarte sobre su desempeño. Con el Buró de Entidades Financieras, se logrará saber quién es quién en bancos, seguros, sociedades financieras de objeto múltiple, cajas de ahorro, afores, entre otras entidades. Con ello, podrás comparar y evaluar a las entidades financieras, sus productos y servicios y tendrás mayores elementos para elegir lo que más te convenga. Esta información te será útil para elegir un producto financiero y también para conocer y usar mejor los que ya tienes. Este Buró de Entidades Financieras, es una herramienta que puede contribuir al crecimiento económico del país, al promover la competencia entre las instituciones financieras; que impulsará la transparencia al revelar información a los usuarios sobre el desempeño de éstas y los productos que ofrecen y que va a facilitar un manejo responsable de los productos y servicios financieros al conocer a detalle sus características. Lo anterior, podrá derivar en un mayor bienestar social, porque al conjuntar en un solo espacio tan diversa información del sistema financiero, el usuario tendrá más elementos para optimizar su presupuesto, para mejorar sus finanzas personales, para utilizar correctamente los créditos que fortalecerán su economía y obtener los seguros que la protejan, entre otros aspectos. Puedes consultar la información relativa al Buró de Entidades Financieras, tanto de Atradius Seguros de Crédito. S.A., como de todo el sector asegurador en el siguiente enlace: