Plimsoll predicts exciting activity in UK food sector

By Jess Halliday

- Last updated on GMT

Related tags: Recession, Debt, Marketing

Most of the UK food manufacturing sector is well equipped to deal
with anticipated economic fall-out this year, according to a new
analysis from Plimsoll Publishing, with a flurry of mergers and
acquisitons on the cards.

Sky-high food commodity prices throughout the world (particularly for grains, but with a trickle down effect to meat and dairy because of grains' use in animal feeds), has led to earnest efforts across the food sector to recover lost margins. Moreover economic downturn in the UK has led to predictions of doom and gloom for the sector, according to Plimsoll. However the market researcher has dismissed such prophesies as not being applicable to most firms. "In fact, it could turn out to be a very exciting year,"​ said senior analyst David Pattison. Pattison's view is based on the emergence of four groups amongst the 500 companies. The 144 companies dubbed 'Market Chasers' are said to be chasing market share at any cost. According to Pattison, these companies spent 2007 gearing up for growth. Some are completely reliant on outside finance. "With their expected growth rates likely to be in the 14 to 18 per cent range, they could cause chaos in the market as their undercutting pricing policies cripple the competition,"​ said Pattison. "Capturing sales from other players is a key part of their strategy."​ The downside, however, is that any interruption of cash flow - if, for example, financiers and banks get cold feet during the year - could deal a fatal blow. The 'Predators' number 131, and are described as "successful companies poised to go on the offensive"​. Able to use their own cash to invest instead of calling on outside finance, they will be able to snap up cheap acquisitions as competitors go under, predicts Plimsoll. Again, though, Pattison sounded a caveat. "The biggest danger in this sector is missing opportunities because of a lack of clear strategy,"​ he said. Plimsoll revealed that amongst the best companies in the winners (best in industry with and average of 8.3 per cent pre tax profit margins) are Adams Food Ingredients, Cereform, Confuco International, JDM Ingredients and Napier Brown. Of 135 'Prey' companies being squeezed out of the market, 52 are seen to be losing money. Backed up with debts, their ability to respond to market challenges is slow. While Pattison says they could still turn themselves around by cutting costs and being open about their issues, they need to act quickly. The 120 'Fence-sitters' are said to be sitting the whole thing out. Indeed, with year-on-year margins of 5 per cent, often in niche markets, they are sitting pretty on their profits. This may give the impression of immunity, but Pattison warned that they could be in jeopardy should a more aggressive player target their sector. Plimsoll Publishing would not reveal which companies it has identified as struggling at the moment, as it does not want to draw public attention to them. This information is, however, included in Plimsoll's report.

Related topics: Market Trends

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