Supply pain: how suppliers have fought to survive for when dining rooms re-open

"I have to admit, when this first kicked off I thought we were doomed.” Like many bosses of food and drink suppliers to  restaurants, Darren Labbett saw sales decline in the early days of the pandemic before dropping off a cliff once Boris Johnson told the public not to eat and drink out. Our turnover dropped by 95% overnight,” says the Woods Foodservice managing director.

“We only supply restaurants, gastropubs, hotels and event caterers so we weren’t able to fall back on the bits of the catering industry that are still going, like some of our competitors have done.”

Restaurant suppliers are in just as a precarious and difficult situation as their customers. Like restaurants, business has dried up and, as a result, they’ve been left with a pile of stock and a equally large pile of debt. On top of that, suppliers have been thrown fewer lifelines by the Government despite facing similar challenges to the sector they sell into. Restaurant suppliers don’t qualify for the Retail, Hospitality and Leisure Grant Fund, business rates holidays and deferrals on VAT payments. The only support they are currently eligible for is the Government's Job Retention Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS).

“Loans are problematic for wholesalers,” says David Visick, director of communications at the Federation of Wholesale Distributors, which represents the interests of around 600 wholesale businesses ranging from foodservice giants like Brakes, Bidfood and Booker to smaller regional players.

“Most wholesalers work on incredibly slim margins - the net is typically 1.5%. While there is a lot of cashflow running through, very little sticks to the business. Wholesale is all about the fast movement of goods and money. Loans might help our members pay some of their outstanding supplier bills, but they will take years and years to pay back.”

Responding a to a recent survey, around a third of Federation of Wholesale Distributors members believe they are at high risk of going out of business and the wider restaurant supply chain has already seen some high-profile casualties, including Mash Purveyors, a high-end fruit and vegetable supplier favoured by many of London’s top chefs.

Faced with virtually no orders, many smaller, more specialist suppliers have had to completely cease operations and are likely to find it very difficult to re-open.

“It is an incredibly challenging period for our members," continues Visick, who is currently lobbying the Government to give wholesalers access to the same support as their hospitality customers. Very few are operating above 20% of what they did pre-pandemic, with the exception of Brakes and Bidfood, which are putting together the vulnerability packages for the Government.”

Switching to supplying the public

In lieu of a more comprehensive Government support package, wholesalers are having to get creative to find a way through. While by no means a panacea, pivoting from supplying businesses to supplying the general public is helping some wholesalers stay afloat. Visick estimates that around 70 of his 600 members have started supplying the public but is quick to point out that these sales are a drop in the ocean for most.

Woods was one of the first major on-trade suppliers to make switch. “We started putting it into place when we saw Italy and Spain go into lockdown,” says Labbett, “We started supplying our restaurant clients at home and it grew from there.

“It’s very difficult to get supermarket delivery slots at the moment so there’s no shortage of demand. However, it is incredibly labour intensive because the orders are far smaller than we are used to, and we’ve also had to completely adapt our product range and website.”

While it only makes up around 15% of Woods Foodservice’s normal turnover, Labett says the initiative – along with support from its bank and a successful application for an early-doors CBILS – saved the Uxbridge-based business. Crucially, consumers pay for their orders immediately, which overcomes cashflow concerns.

Like Woods, fellow dry store supplier John Mower has a restaurant and hotel focus and so was left dangerously exposed as order volumes fell away in March. To survive, the Hertfordshire-based business has taken on new accounts in the care sector and is also supplying to homes in London and the northern home counties.

“In the early days of the crisis the public could not get their hands on many of our key products including flour, pulses and pasta. Luckily we had a big container of the latter coming over from Italy. They were also desperate for toilet roll,” says sales and marketing manager Angie O’Connor.

“It’s still a very worrying time for us as a business. We have been trading for over 70 years, so we have gone through a few recessions. The problem with this situation is that it is so unprecedented. There’s no playbook to deal with this. We just don’t know what is going to happen.”

"It is an incredibly challenging period.
Very few are operating above 20%
of what they did pre-pandemic"

Like many other wholesalers, the company is working with restaurants to support their charitable efforts, in this case supplying the likes of Hawksmoor and Angela Hartnett with ingredients to cook for NHS workers.

London-based Reach Food Service is another company that has had to make the move from supplying the capital's restaurants, including Novikov, Hakkasan and Brigadiers, to delivering directly to people's homes. The company has remained fully operation six days a week to supply its remaining clients that have opened for takeaway and delivery and has taken on the Greater London logistics for Cote's Cote at Home delivery range. It has also launched premium food home delivery service Reach My Kitchen that delivers seafood and meat hampers as well as ingredients such as caviar to people's homes having seen most of its sales disappear virtually overnight.

"It has been a challenging time, but we are all in this together and will emerge stronger," says director Abbas Lalljee.

Reach has also continued to support industry charities including The Caring Foundation, The Felix Project, City Harvest and Hospitality Action, and has in the past 10 weeks donated 140 tonnes of food items to charity. For every order placed with Reach My Kitchen it will donate £2 to be split evenly between The Felix Project and  Hospitality Action.

Direct support

Some suppliers are providing direct support to the restaurant sector. Berkmann Wine Cellars has launched an online platform – ‘Help 4 Hospitality’ – to deliver wine to consumers while donating a share of the profits to the hospitality sector. Any hospitality operator that joins the scheme will be given a voucher code to share with their mailing list, and with every wine order placed with the code, Berkmann will donate 12.5% of the profits to the partner outlet.

The donations can be used to directly aid business cash flow during the crisis or can be split between hospitality-based charities The Drinks Trust and Hospitality Action. Consumers ordering through the scheme will receive a 5% discount on their purchase and will receive their wine within five working days, or the next working day in London.

“It’s too small to be about keeping us afloat. For us it’s about keeping our customers engaged and helping them out with a bit of extra revenue,” says purchasing director Alex Hunt. “Retail is up but it does not come close to compensating for the loss of on-trade. It’s a very challenging time.”

Fish supplier Wild Harbour has also switched to supplying the public. The Cornwall-based company is in the process of launching a consumer-facing website and is already delivering fish to some residential areas and will soon offer its day boat fish nationwide.

“You’ve got to adapt and do your best. We were in a very different situation to most other suppliers because we don’t hold any stock. Our business model is to source directly from the boats,” says sales and export manager Jace Bowden. “Fishing boats are still going out. They still need to put food on the table. The fishing industry wasn’t in great shape prior to this so we need to support them.”

Offloading stock

Switching from B2B to B2C is not for everyone. National meat supplier Aubrey Allen had a huge challenge on its hands when orders dried up towards the end of March because it holds around £500,000 worth of dry-aging meat, enough for eight weeks worth of business.

“We needed to get the beef out the building very quickly,” says sales and marketing director Lucianne Allen. “We hired in huge freezer trucks and ended up selling most of our stock at cost to independent butchers, which were struggling to get hold of meat because the supermarkets had bought it all up.”

Aubrey Allen has put together meat boxes for locals and briefly ran a drive-thru business to get rid of more excess stock, but Allen does not believe it would be financially viable to pivot the business to supplying consumers.

“The Job Retention Scheme is very generous. The five-person skeleton crew running our warehouse making up 100 or so meat boxes was great, but anything more than that would have meant taking staff off furlough. A lot of people in our sector have been doing stuff simply to remain visible. I don’t believe anyone is making a significant return.

“We’re doing less than 5% of what we normally do. It’s very tough. We’re not counted as hospitality so we’re not getting any grants and we can’t shut up shop entirely because we need to look after our stock, and that of course requires people and utilities.”

Another possible survival strategy for restaurant suppliers is to expand ranges to offset the loss of turnover caused by the pandemic. Woods is in the process of adding fresh fruit and vegetables to its line-up in a move that has the potential to add up to £5m to its annual turnover. “Over the last few years many fruit and veg wholesalers have started supplying dry stores and other products that we specialise in so it’s been on the cards for a while,” says Labbett.

“We need to make up turnover. We’ve lost around 80% of our business and when we come out the other side of this restaurants will not be operating at full capacity for some time. Adding fruit and veg is fairly low cost for us and could double the size of some of our orders.” The new range is expected to be available from July.

Business failures in the wholesale sector are likely to create opportunities for suppliers to increase the scope of their offerings and businesses may also look to merge and consolidate to strengthen their positions.

Credit where credit is due

Many restaurants are yet to settle some of the orders they made before the pandemic, a situation viewed by wholesalers as unfair because they have – theoretically, at least – already sold on this stock at a profit. The Federation of Wholesale Distributors and Scottish Wholesale Association have penned an open letter to 350,000 pubs, restaurants, cafes, hotels and leisure facilities asking customers to use some of the allocated Government funding to settle invoices for stock ordered before lockdown.

“Our members would desperately like to be paid for any stock operators bought and sold on before the lockdown,” says Visick. “We appreciate how incredibly difficult that is for any end user operator. But they are getting a lot of help from the Government, and we’re not really.

“When venues start to re-open – and we really hope that will be quite soon – they are going to need a healthy supply chain and they will also need good credit terms. We owe money to our own suppliers, and they won’t give us more goods to sell while that debt is still outstanding. This puts us in very difficult position.”

Allen believes that the Coronavirus crisis has highlighted the fragility of the restaurant supply chain. “Suppliers have become banks and it’s just not sustainable,” she says. “I predict that up to 20% of food service suppliers could go over this and if something similar happens again it will be more like 70%. Then where would we be?”

Aubrey Allen has tighter credit controls than most suppliers, typically 10 days after month of supply (the industry standard is 45-60 days). While the business is far less exposed than some, it’s still yet to talk to a number of its key accounts about outstanding payments.

"Suppliers have become banks and it’s just not sustainable.
I predict that up to 20% of foodservice suppliers
could go over this and if something similar happens again
it will be more like 70%. Then where would we be?”

“Restaurants only having enough cash to get them through a few weeks is not right,” Allen continues. “We need to pull it back. Restaurants are a cash positive industry so they should be paying suppliers more quickly.”

Labbett is a bit more relaxed but, like Aubrey Allen, Woods Foodservice has struggled to get in touch with some of its customers, especially single site operators. “With restaurants closed it’s been difficult,” he says. “But our bigger accounts have either paid or have set up payment plans. We are expecting some bad debt to come out of this crisis but some of it will be covered by our credit insurance. I don’t expect it to cause long-term problems for the business.”

For wine suppliers the situation is a little different because restaurants usually have the option to send back unwanted stock. “One of the first things we did is offer our customers the option to get stock picked up. A lot of restaurants took us up on this and were able to reduce the size of their bill,” says Liberty Wines managing director David Gleave.

“Some of our customers have been able to pay us in full and we have worked out payment plans with those that can’t pay in full. The key is to have a dialogue. We’re all in the same boat so we need to work together to solve the problem.”

“All suppliers need to protect their cashflow and avoid bad debt. At the same time, if we’re not supporting customers we could be precipitating their closure or exacerbating their problems, and that does not benefit us either,” says Hunt. “It’s a very delicate balance.”

The Federation of Wholesale Distributors has welcomed the Government’s announcement that it would underwrite trade credit insurance. “This is critical because some of the customer businesses coming back will have no reliable record of trading in recent months, so it’s a leap in the dark for wholesalers to offer credit,” says Visick.

The new normal

With restaurants potentially opening as early as July, suppliers are now starting to talk to their customers about their requirements. More clarity from Government about under what conditions restaurants can re-open is as essential to suppliers as it is to restaurants themselves.

“We need a bit of notice and detail about what is going to re-open and under what limitations so we know what to buy,” says Visick, who is calling on the Government to provide a clear road map for re-opening hospitality and leisure businesses.

“Working out how much stock to purchase is difficult. It’s going to be a leap of faith,” says Allen. “We’ve talked to some of our key clients and they expect to be down between 30% and 40% on re-opening. Some think this downturn will continue for a whole year.”

With smaller kitchen teams likely, Allen thinks restaurants will favour pre-portioned items that are quick and straightforward to prepare. “Portion control will be key,” she says. “I’ve only heard of one restaurant that plans to radically change what they do.

"In the main I think those that can stay true to what they are while adapting to the circumstances that they find themselves in will be on the ones that survive."