Wholesalers could face “potential Armageddon” depending on how businesses re-open following the Covid-19 pandemic, according to Colin Smith.
The SWA Chief Executive issued the stark warning in the latest TWC Soundbites vlog as he raised concerns about how the hospitality sector would eke its way out of lockdown and the knock-on effect that will have on foodservice wholesalers.
While Smith can see the positives in businesses re-opening, he worries that with Scotland working behind the rest of the UK in terms of recovery and some smaller businesses not likely to open immediately when lockdown relaxes, wholesalers will feel the strain.
“It’s all well and good saying the drive-thrus are re-opening, the wee cafes, the big chains, but that’s not going to help our members because they don’t necessarily supply those national chains,” Smith said.
“Potentially 30,000 pubs across the UK may not open at all and they’re certaintly not going to open overnight. The concern is that they’ll open gradually and potentially there’s going to be Armageddon. We’ve got all our wholesale members open thankfully, but they’re going to want trade and try to grow their business as much as possible, but there isn’t going to be a big enough pie – it’s a small pie and they’ll all be fighting for it. Will it then become a race to the bottom again and will it be the cheapest operator wins?
“There’s also going to be a lot of bad debt coming out there, so certain wholesalers may not want to supply a certain restaurant any more, so another wholesaler takes on that risk. At the moment, there is a bit of a calm – just in some cases – but it’s when we start to come out of it and that’s potentially when we could see real difficulties in trading and risks being taken that shouldn’t ordinarily be taken.”
Listen to Smith’s full interview on TWC’s Sound Bites
While Smith has applauded the efforts of Scottish wholesalers to adapt to the crisis by offering consumer-facing services, he says his members are unlikely to continue offering them once the worst of the pandemic is over.
Based on a recent survey, he said many wholesalers serving foodservice businesses have seen an 80% drop in sales since the beginning of the crisis, but have only managed to get 1-2% back through consumer services – just enough to keep the wolves from the door. How long that lasts is another matter, though.
“Longer term, this isn’t going to be a model that the wholesale channel will continue I don’t believe. Or certainly our members have said that,” Smith added.
“It’s about turning over current stock that’s been sitting there, potentially going out of date and wasted, which we don’t want. And equally it’s to keep money coming in for fixed overheads – we’ve still got buildings, vehicles and keep some staff in employment.
We did an initial survey six weeks ago now and initially members were saying they’d only got two to three weeks cashflow before it became cash critical. We’re now going into week 10, those businesses have luckily done enough to sustain that business and there’s nobody yet closed, but we are now at a precipice if we don’t see businesses open and some normality come back to the market, or we don’t get funding from governments, we are going to see casualties and we don’t want to see that.”