The number of food and drink manufacturing companies entering insolvency has increased by 108% in the last year, according to procurement and supply chain management consultancy INVERTO. High ingredients costs have been a key factor in the increase.
Food and drink companies have struggled with significant inflation of supply costs, which have eaten into their profit margins, said INVERTO. The costs of ingredients rose dramatically in the wake of the Ukraine conflict, particularly grains, cereals and products requiring significant fuel outlay to source.
With weakened profits, many businesses struggled to service debts as interest rates rose, according to the findings.
Food manufacturing companies recorded a 102% increase in insolvencies, from 99 in the previous year, to 200 in the year just gone. Collectively, food and drink companies entering insolvency has increased by 108% to 287 in the year to the end of June 2023, compared to 138 the previous year.
Manufacturers should request transparency over costs
Mohamad Kaivan, managing director at INVERTO, said that as price deflation is now beginning to occur, food and drink manufacturing companies should be renegotiating prices down with suppliers. Notably, the prices of ingredients for many manufacturers like dairy products and flour have fallen – however, those price reductions will not help food manufacturer margins until they ensure those price reductions are passed on to them.
Kaivan added that food manufacturers should ask their suppliers for greater transparency over their costs. Understanding the structure of their suppliers’ costs can help procurement teams to negotiate fairer prices and accept pain sharing if necessary.
He continued: “While businesses should look to take advantage of decreasing prices, they also need to be preparing for future risks that could potentially impact their businesses. This often requires a rethink of their strategies and ways of working with their suppliers to ensure they can improve their future resilience to potential supply shocks.”
