One in five food and drink companies has poor credit rating, study finds

Alison Healy, The Irish Times, 27th February 2014

One fifth of companies in the Irish food and drinks industry have poor credit ratings that should prompt suppliers to seek reassurances or guarantees of payment, a new study by StubbsGazette has found.

Its 2014 Food and Drinks Industry Report analysed 3,000 companies, which included all actively trading limited companies but excluded sole traders.

It found a large number of companies, particularly in the beverage sector, had poor credit ratings, according to StubbsGazette’s managing director James Treacy. “The food and drinks industry is a real star performer. Nonetheless, as our findings show, there remain a substantial amount of companies whose credit ratings are unsatisfactory, so it pays to check before doing business.”

StubbsGazette’s credit ratings are calculated using factors such as financial data, judgments, unsecured creditors and the agency’s own collection data. The worst credit rating scores were found in the beverage sector, where 33 per cent were rated in the lowest category. According to StubbsGazette, assurance of guarantees should be sought before extending credit to companies in this category.

Companies in the prepared foods sector had the second lowest credit rating – 21 per cent of those companies fell into the lowest category. The fruit and vegetable sector and seafood companies had the highest credit ratings where, in both cases, 35 per cent of companies were deemed to have a low credit risk. Some 23 per cent of companies involved in the meat and livestock had a low credit risk.

The report also highlights several challenges facing the food and drink sector and says the banking crisis and credit crunch has limited funding to primary producers. Larger companies are considered well-funded to continue growing.

“On the retail side, price pressure is relentless, with private label brands providing an increasing challenge to brands as customers modify their buying behaviours in the age of austerity.”

‘Creeping bureaucracy’

It also warns that “creeping bureaucracy” associated with issues such as quality control and traceability is adding sizably to the cost base. “That said, the costs could usually be justified in the face of the costs from the periodic food scares that have caused immense damage,” it says.

“The effects of the Foot and Mouth outbreak of 2001, to the pork contamination crisis of 2008 to the horse meat adulteration scandal of last year, show the fragility of the reputation of the food and drinks industry. More than most it is susceptible to catastrophic setbacks.”

The report says the food and drink industry has been “enjoying a forceful macroeconomic tailwind” in recent times.

“For all our success and aspirations in fashionable high-tech and sciences industries, it is the more familiar and traditional food and drinks industry that has become even more critical to national fortunes,” it says. The downturn in 2008 marked for the food industry “the start of a sustained period of strength that shows no signs of diminishing”.

The food and drink report is the first in a series of StubbsGazette reports on the key industrial sectors to be published in the coming months.