Assistant Head of Risk Underwriting, Kieron Franks, discusses the collapse of major meat firm Russell Hume and the steps we took to protect our customers from cash flow problems.
When Russell Hume became involved in a food safety scare back in January 2018, customers looking to get their steaks from a reputable meat firm were left without supplies. At Wetherspoons, 100,000 valued customers expecting steak night, were left unsatisfied.
Chairman of JD Wetherspoon, Tim Martin, soon found that this shortage created cash flow problems and impacted the pub company’s reputation. While steaks were the most popular items, the difficult decision was taken to remove them from the menus.
We handle the unexpected
In January 2018, Food Standards Agency (FSA) officers made an unannounced visit to Russell Hume’s Birmingham site. There they found a series of hygiene and safety failings and closed down all of the company’s sites across the UK - a total of six sites, with over 300 employees, and a turnover of more than £50m. In June 2021, the FSA dropped criminal action against Russell Hume because of a “technical legal error” made during the investigation.
Kieron Franks explains that this was one of only two cases of a major company collapse he could recall that took him by surprise: “It came as a shock to everyone. It’s very hard for our customers to predict which client will default on payment. In fact, almost half of all payment defaults come from companies where there is a stable and long-term trade relationship.
“FSA visits occur all the time but shutting down production was unexpected. This makes it a perfect example of when credit insurance pays off – we’re here for the unexpected and the unforeseen.”
Our initial response makes all the difference
Nationwide, food companies, such as Hilton Hotels and Jamie’s Italian, were left vulnerable by Russell Hume’s closure. “Our customers who worked with Russell Hume faced a significant challenge,” says Kieron. “Given the size of their contracts, we had a credit analyst monitoring the company on a regular basis and when the news broke we reacted quickly
Our first step, to protect our customers, is to contact the company directly to fully understand the extent of the problem. In this case, the firm had ceased all production, and was unable to generate cash or make payments to creditors in the short term.
We then contacted all of our customers that had cover in place, to ensure they were fully appraised of the situation. We were then able to discuss their options. Keiron notes: “We made it clear that they would be covered for what was delivered up until the day of cancellation. We let them know that given the closure of the business, we would be unable to continue with cover.”
National news coverage meant that our customers were fully aware of the scale of the problem and their own potential risks. Our quick and personal response to the crisis was key to protecting them from greater cash flow problems and the potential of credit risk or debt.
Russell Hume’s FSA report at this point described the company’s food safety management as “systemic and widespread”, and the firm was placed in administration.
We keep learning with every incident
Forecasting business risk is difficult, but this case illustrates that customers receiving support from Allianz Trade, find that our combination of economic intelligence, market knowledge, expertise in risk analysis and our well-established industry network, can make all the difference
The fall of drinks supplier Conviviality in 2018, has also added to our knowledge of a large-scale supplier collapse. The company, valued by the stock market at close to £750m in November 2017, was ““one of the quickest corporate collapses ever seen in the UK”, according to the Guardian.
“Even with Conviviality, we knew that the company was being slow in making payments and wasn’t responding to communications, so it’s extremely rare that we are taken by surprise,” says Kieron.
The pandemic has seen a sharp rise in the number of company insolvencies, with figures for July 2021 showing the highest number of debt relief orders (DROs) since it began. It is expected that the pandemic will see a 43% rise in UK insolvencies.
In order to reduce credit risk and cash flow problems, we recommend finding supportive services that can make sure you are alerted as soon as possible to possible dangers to your business. ).
Find out more about measures to help with risk management, including excess of loss (XoL) and trade credit insurance.