Trade debtors: Is it business as usual for the food and drink industry, or are suppliers at risk?

  • The food and drink export market has reached pre-pandemic levels for the first time
  • But other parts of the industry – including the coffee/sandwich, restaurant and pub markets continue to falter, creating the risk of trade debtors
  • We examine the current state of play for the food and drink industry

The food and drink industry is the UK’s largest manufacturing sector, accounting for 20% of total UK manufacturing and with a turnover of more than £112bn. And 97% of those businesses are SMEs.

Along with most sectors, food and drink has been impacted by the pandemic, the cost of living crisis, supply chain problems and rising energy costs.

This puts both the industry, and its suppliers, at risk of trade debtors, i.e. invoices owed to them by customers/accounts receivable.

So, what is the current state of play in the industry? Are firms clawing their way back from the challenges of the last few years and how can they avoid bad debt?

The food and drink export market

Well, the good news is that, according to trade body the Food and Drink Federation, imports and exports of UK food and drink are now above pre-pandemic levels for the first time. A positive message for the 468,000 people across the UK who work in food and drink manufacturing, and the 4.2 million employed in its supply chain.

Ireland, France and the USA are the top three markets for UK food and drink exports, but Australia and New Zealand are coming up fast, with strong growth (16.6% and 18.4%) in both markets in 2022. New trade deals between the UK and these Commonwealth cousins come into force in 2023 - removing tariffs and delivering faster border processes, which may drive further export growth.

The coffee/sandwich market

Meanwhile, food and drink businesses that rely on traffic from city centre office workers have been having a difficult time.

Sandwich and coffee chain Pret a Manger finally returned to profitability in March 2022 and has been cashflow positive since May, after heavy losses in 2020 and 2021. But sales in London in particular (the location of a third of its 424 UK stores) are still impacted by the shift to working from home.

Pret has been devastated by the loss of office workers and tourists from city centres and in 2021 suffered losses of £225.9m, an improvement on its £343m losses in 2020. Train strikes in 2022 continue to affect commuters and are causing what chief executive Pano Christou calls a ‘huge’ hit for the business.

Coffee chain Starbucks has also been impacted by the loss of city centre traffic and the Times reported in July that its adviser Houlihan Lokey has been asked to assess interest for its UK operations. Though a Starbucks spokesperson told Bloomberg it “is not in a formal sale process for the company’s UK business.”
Starbucks has said that the financial performance of company-owned stores had not recovered to pre-pandemic levels.

In 2021, market researchers Allegra Group warned that UK coffee chains would need four years to recover from the slump caused by the pandemic.

The restaurant market

For the restaurant market, recovery from pandemic closures, compounded by customers trying to cut spending and worker shortages, has seen a record 66% of the UK’s top 100 restaurant groups making a loss. Data from accountants UHY Hacker Young shows that 1,406 restaurants in the UK closed their doors in the 12 months to May.

High-profile names such as Byron, Gourmet Burger Kitchen, Strada and Carluccio’s have all closed dozens of sites in the last few years, following the pandemic, and UHY Hacker Young says losses at the top 100 restaurant groups has now risen to more than £800m.

With warnings of inflation rates reaching 12% by October, many more restaurant customers may be forced to curtail their dining out.

Peter Kurbik, Partner at UHY Hacker Young said: “The restaurant sector has been left reeling by successive economic setbacks. The pandemic, shortly followed by soaring inflation and supply chain issues, hit the sector when many restaurant groups were already vulnerable.”

The pubs market

Meanwhile, brewery bosses have warned that pubs across the UK could be forced to close due to soaring energy costs – which energy regulator Ofgem, has warned would rise by 80% for households from October.

Leaders of six of the country's largest breweries have called for "immediate government intervention", including a support package and a cap on the price of energy for businesses. One pub landlord in Essex told the BBC that his energy costs had risen from about £13,000 a year to £35,000.

Nick Mackenzie, CEO of pub group Greene King, told the BBC the company could face "the prospect of pubs being unable to pay their bills, jobs being lost and beloved locals across the country forced to close their doors".

Rising energy bills come as pub closures continue to increase, with the number of pubs in England and Wales hitting its lowest level on record in June 2022, according to analysis.

Trade credit insurance help with trade debtors

If you work in the food and drink sector and are worried about potential trade debtors as the industry continues to face problems, knowing your customers is key.

Ask yourself, which firms could potentially have a cash flow crisis, leaving them unable to pay your invoices? And which are struggling to deliver goods or services? Often the risk factors are the credit risk iceberg beneath the surface.

Trade credit insurance not only reimburses a company if a customer fails to pay an invoice, but has substantial information benefits too. This information flow from the trade credit insurer helps firms move zombie companies onto pro forma terms (to protect cash flow) and extend additional credit to those seizing new opportunities – and capitalise on growing order volumes.

Find out more about cash flow management and the benefits of trade credit insurance with our handy tips.
For a free credit insurance consultation call our UK team, 09:00-17:00 Mon-Fri.