A surge of takeovers in prepared salads, frozen foods, fruit and veg, meat, fish and poultry firms is on the cards as retailers crank up the pressure on suppliers, according to a study of consolidation in UK food manufacturing.
Following big deals in sectors such as butters, spreads, sugar and canned soups in recent years, other categories were ripe for the picking, claimed the study for Grant Thornton and Inflexion Private Equity.
A huge number of small food companies was making only marginal profits and faced closure or takeover, said Jonathan Smith, md at Axis Consulting, which conducted the research.
In the snacks and crisps market, for example, own-label firms were squeezed between category leaders like Walkers and niche branded suppliers, he said.
Sugar confectionery was also “ripe for a well-funded consolidator”, said Smith. “And we would not rule out the possibility of a multinational player acquiring market share if a suitable business became available.”
More than 150 UK food manufacturers went into receivership and 300 were dissolved in the last two and a half years, said Smith.
The food sector was extremely fragmented compared to other industries, with just a handful of sizeable players and thousands of companies turning over less than £10m, he claimed.
Although many niche suppliers and some multinationals were enjoying strong growth and healthy profit margins, many mid-tier players lacked strategic direction and were unable to identify their competitive edge, claimed Smith. “People get so embroiled in the day-to-day running of their business and keeping customers happy that they are not thinking strategically about where they will be in five years’ time and how they are differentiating themselves in the marketplace.”
Hot favourites for takeovers
CategorySales (£m) Year-on-year Consolidation change (%)activity
Fruit and veg5,900+3.7Very high
Total meat, fish and poultry3,000+1.0Very high
Snacks and crisps1,700-2.3Very high
Frozen savoury1,100-3.5Very high
Prepared salads649-1.0Very high
Frozen desserts325-5.2Very high
Milk2,500+3.5High
Bread/morning goods1,800+5.0High
Cheese1,800+4.1High
Chilled ready meals1,500+6.6High
Sugar confectionery 1,200+0.1High
Ambient cakes872+4.7High
Fruit juices795+5.5High
Sandwiches635+7.7High
Cooking aids295+3.4High
Home baking264+17.3High
Source:AC Nielsen/Axis Management Consulting estimates for year to April 30, 2005