Rapidly increasing input cost inflation is piling the pressure on UK food producers, causing them to warn of the most severe profit warnings in over 20 years as costs continue to spiral.
According to EY-Parthenon’s latest Profit Warnings report cost pressures featured in 70% of all consumer sector warnings, with many reporting a struggle to pass on price increases to customers as the cost-of-living crisis continues to bite.
Falling consumer confidence and a change in buying behaviour also featured in 50% of retail industry warnings, and consumer-facing companies issued 44 warnings – the highest quarterly total since the start of the pandemic.
The entire retail sector has been grappling with long-term structural change as of late – with most retailers feeling the impact of the post-pandemic shift back to in-store sales on top of increased delivery costs.
Additionally, more than 70% of retailers issuing a warning in Q3 2022, while inventory challenges intensify as falling demand creates surplus stock issues.
Shares in Fever-Tree were hit by profit warnings in July as the premium tonic producer struggled with rising costs, after shortages in labour and glass supply impacted its US business.
“Businesses are facing an unprecedented combination of headwinds including rising costs, slowing demand and excess supply, making it increasingly difficult to balance competing priorities,” EY-Parthenon UK&I turnaround and restructuring strategy leader Jo Robinson told The Grocer.
“This quarter, we have seen a significant increase in companies issuing their third or more warning in a 12-month period.”
Robinson added: “With so many uncertainties in the outlook it’s vital that companies develop resilience and demonstrate a clear understanding of how their business will adapt under different geopolitical and economic scenarios.
“Increasing uncertainty means events could move quickly for companies that show signs of stress – turning the situation around requires a swift response, sustainable and defendable forecasts, and the building of stakeholder trust in management.”
