FWD's David Visick: 'This is not a supply chain that can pause, let alone come to a sudden catastrophic stop'
David Visick, director of communications at the Federation of Wholesale Distributors (FWD), shares his thoughts on the vital importance of foodservice distributors and the key role they will play in rebuilding the hospitality sector as the UK starts to plan a coronavirus exit strategy.
"A small family-owned food distributor in Nottingham went out of business recently. With stock still piled high on his shelves, the owner sent his team home to their families and locked the doors for the last time. Before the crisis, his vans were delivering produce to busy restaurants, cafés and social clubs, as they have for 40 years. His customers disappeared overnight, leaving bills unpaid, and while there's a good chance those businesses may reopen again in a few months or even weeks, their wholesaler never will.
"It's not the first to go and it won't be the last. Regional foodservice and on-trade distributors all over the country are heading for a similar fate without government intervention that goes far beyond the business support measures already announced. If they go, it won't just be another awful story of an industry torn apart by the economic shock that is turning the world upside down.
"If they go, food supply to care homes, hospitals and other critical services will go with them. Remote communities, villages and neighbourhoods beyond the reach of the supermarkets and national restaurant chains will lose their services. And when the high street doors do open again, those independent foodservice businesses, those family-run SMEs, those brilliant, individual, community-focused cafés, bars, restaurants, hotels, coffee shops and pubs, will have nothing to sell.
"Since the closure of hospitality businesses, some of FWD's foodservice distribution members have lost 95% of their trade. Wholesalers typically give their customers four to five weeks' credit and get roughly the same terms from their product suppliers.
"The customer businesses owe huge sums to their distributors for food they've already sold, but they've prioritised other costs for their remaining cash. They're not paying their bills, the suppliers are starting to lean very heavily on the wholesalers for payment, and the credit insurers have run for the hills.
"Delivered wholesalers operate on 15%-25% gross margin, but only 1% on earnings before interest and taxes. It's all about fast goods one-way, fast cash the other. This is not a supply chain that can pause, let alone come to a sudden catastrophic stop.
"Wholesale distributors hold vast amounts of stock. They pay for warehouses, vehicles and refrigeration, and while they employ vast numbers of people, wage costs are a significantly lower proportion of overheads than most businesses. So, while the Coronavirus Job Retention Scheme, which gives businesses relief on wages, is welcome and very necessary, it doesn't help this industry anywhere near as much as others.
The chancellor has announced loans for SMEs but even for those wholesalers who meet the criteria there's a problem. Additional borrowing on their slim margins means profits would be wiped out for years to come, and with no trade coming in, the borrowed money would go straight to the suppliers whose products the wholesalers were left holding when the music stopped.
"The minute coronavirus releases its grip, Rishi Sunak needs our brasseries, trattorias, chippies, snack bars and boozers to fling open their doors, spread their chairs and tables across the pavement, bring their people back from furlough and administer the defibrillator panels to the stopped heart of our economy.
"To do that, they're going to need the £11b industry that supports them not only with business advice, chef training, allergen information and menu ideas, but with a margin that enables them to thrive and expand. They'll need the regional specialisms, the ability to integrate with local farms and fisheries, and the invaluable experience of field and telesales teams who know their businesses almost as well as they do. Suppliers too might want to consider the consequences of a predatory retailer or two casting their eye over a market where previously hundreds of wholesalers had competed for a share.
"With the ingenuity and agility that they've always been known for, our members are evolving at a tremendous rate. Within days we started to see online home delivery services set up to move goods straight to consumers. Those who could shifted stock and resources from their foodservice divisions into retail, and those who couldn't worked with former competitors to redistribute stock to the customers who still need it – the care homes, NHS sites and schools opening for the children of key workers. Where some of our larger members are involved in providing care packages for the vulnerable, they've offered to take up the surplus elsewhere. Where they can't sell short-life stock, members have moved it on to charities and foodbanks in their areas.
"We've been in constant contact with Defra for the last three weeks, speaking to secretary of state George Eustice most days. His officials have teamed up with their Treasury counterparts to take our proposition to the chancellor.
"Our simple ask: regional foodservice distributors need a direct, immediate cash injection to maintain food supply lines to services for the most vulnerable, like private hospitals and care homes, and to the most important, like emergency workers, the police and the armed forces. They need cash to cover debts so they can buy stock when the fog lifts, and so the hundreds of thousands of businesses they supply and support will have a supply chain when they re-emerge from hibernation.
"We know the chancellor has pledged to do whatever it takes to preserve businesses, but we also recognise that he can't just throw out grants to everyone, and he's not inclined to listen to special pleading alone.
"So, we have put forward plenty of proposals that his team will take to his desk. The case is made and the jury's out. Mr Sunak, it's now over to you."
