According to INVERTO, a procurement and supply chain management consultancy, the number of food and drink manufacturing companies entering insolvency has risen by 108% over the past year. This increase can be attributed to the high costs of ingredients. Food and drink companies have been struggling with significant inflation of supply costs, resulting in reduced profit margins.
INVERTO highlights that the costs of ingredients, particularly grains, cereals, and products requiring significant fuel outlay to source, have surged following the Ukraine conflict. This sharp increase in costs has made it difficult for many businesses to service their debts as interest rates rose.
Specifically, food manufacturing companies have experienced a 102% rise in insolvencies, from 99 in the previous year to 200 in the past year. Collectively, the number of food and drink companies entering insolvency has increased by 108% to 287 in the year ending June 2023, compared to 138 in the previous year.
To address this challenging situation, Mohamad Kaivan, the managing director at INVERTO, advises food and drink manufacturing companies to renegotiate prices with suppliers as price deflation begins to occur. Although the prices of ingredients like dairy products and flour have decreased, manufacturers must ensure that these price reductions are passed on to them in order to improve profit margins.
Kaivan emphasizes the importance of seeking greater transparency over suppliers’ costs. Having a comprehensive understanding of suppliers’ cost structures enables procurement teams to negotiate fairer prices and accept pain sharing when necessary. It is crucial for businesses to capitalize on decreasing prices while also preparing for potential future risks that could impact their operations. This may require reevaluating strategies and collaborating effectively with suppliers to enhance resilience to potential supply shocks.