Wholesale Profit Bombshell

No cash – no business. Unless you have a generous benefactor prepared to bankroll you. And it follows that no profit – no cash. This puts profit front and centre of every commercial business irrespective of size or sector. And why The Grocer’s annual “Big 30 Wholesalers” analysis makes for interesting reading. Published every year around February it is an insightful view of the health of the sector.

Allowing for the nuances of company reporting, The Grocer has trawled through published company accounts, plus related documents to unearth the facts and the performance numbers. What does this year’s report tell us? A positive story on turnover. Up 15.1% year on year to £33 bn. People employed up by over 2,000 to over 67,000, another positive. And several wholesalers are investing in their businesses. So, at first sight things look good. Now the bombshell. Profits at 0.9% of sales are down from the previous year’s 1.1% and the trend has been down since 2021 which settled at 1.6%. Only twelve companies reported profit at 2% or more with seven reporting profits of 0.9% or less.

We know that wholesaling is a margin skinny business and that all the associated overheads need constant attention to control the cost to serve. External factors have combined to create a super hostile environment. The increase in the National Living Wage for example, by 9.8% is the largest ever cash hike to the minimum wage. Business rates are up, and energy costs are punitive. I have stated before in these scribblings that buyers are the most important people in wholesale. This is when they really must deliver. Negotiating the best terms from suppliers, selecting profitable and productive ranges, and managing stockholding effectively make a significant and vital contribution. Dealing with suppliers is becoming increasingly difficult, especially for the smaller wholesalers. Companies like Diageo have already signalled how they see the industry playing out and they are placing their bets on the big actors such as Booker and Bestway. They have applied tough minimum order quantities and trading terms, and they are expecting consolidation to mop up the smaller players. It remains to be seen if other major FMCG suppliers follow their lead. Maybe it is time to widen the search for alternative stock sources? In this inflationary environment there are many stock profit opportunities to be exploited but not at the expense of capital tied up in slow moving products. This demands fine judgment. Negotiating and stock management require substantial skill on the part of the buyers. 

The operators too have an important role to play. The pressure on wage costs will necessitate an improvement in productivity. Less hours, but not at the expense of customer service. Wastage and shrinkage in all areas need to be tightly controlled. Done well this can contribute greatly to the business performance. Customer debts must be reined in. This often requires a difficult trade-off between chasing sales versus ensuring timely payment. Bad debt can have a devastating impact on profit. Not only is the money lost, but often the debtor defects to alternative operators resulting in a double hit on the profit and loss account.

The wholesale sector is exceptionally important to the food and beverage industry. Thousands of hospitality, catering and retail businesses depend on it surviving, thriving, and having funds for future investment. As do many of the brand owners and supplier companies. “Profit first” should be the mantra and the warning lights are flashing. Declining profits must be turned around.