The collapse of Palmer & Harvey – a salient warning to us all…

14 December, 2017

The collapse of Palmer & Harvey, the UK’s No. 1 wholesale delivery business last month sent shock waves through the industry. Despite the fact that its cash flow problems were widely known, many held firm in the belief that P&H was somehow immune from administration due to its size and large supermarket customers.

 

So why could a buyer not be found for a business that supplied over 90,000 stores, ranging from independents to the behemoths of Tescos, Sainsburys and Costcutter?

 

Murky financials may well be the primary reason. Cash flow issues are one thing: losses doubled over the period 2015-2016, with operating profits being wiped out by the cost of servicing loans. But there are also allegations of mishandling of company funds. The revelation that almost £70m has been stripped out of the business by way of interest payments on preference shares and dividends since the MBO in 2008 is disconcerting to say the least, particularly when it emerges that part of the money was taken from staff benefit trusts. Potential buyers would also no doubt be put off by an estimated £80m black hole in the pension pot.

 

But financial issues can always be solved if the opportunity is juicy enough. So what else put buyers off? The answer seems to be the fundamental shift in the market, where retailers are increasingly moving into the distribution space. Tescos was one of P&H’s largest customers, making up over 40% of its business, so when it acquired Booker earlier this year the P&H board must have grown increasingly nervous.

 

None of the above helps the 2,500 employees who lost their jobs last month, nor the 404 more made redundant this week with rumour of a further 500 jobs still at risk. Nor does it help the legacy of a business that had successfully faced down numerous other challenges over the course of the last century.

 

And then there’s the businesses left with the threat of short supply on groceries and tobacco products at the busiest time of year. The ramifications of the ‘ripple effect’ could be huge, so what lessons can be learned?

 

The first must be to have contingency plans in place: don’t wait until a key supplier lets you down. Staying aware of the market allows you to formulate alternative plans should they be needed, and to make sure you maintain competitive terms with your existing suppliers.

 

The second must be to avoid placing all your eggs in one basket. Overreliance on any one source (even with a 100 year track record) is a dangerous strategy and increases the risk profile of your business.

 

The third, as trite as it sounds, is to remember that every crisis gives rise to opportunity. With P&H removed from the market, there are a whole lot of retailers out there looking around for new suppliers and doors which might once have been firmly closed are now wide open.

 

There’s no good time for bad news, but Christmas is just about as bad as it gets. Once the investigations are over, there’s more than one Bad Santa out there determined to hold those accountable for destroying so many people’s seasonal good cheer. And I say, good luck to ‘em.

 

If you have any concerns about your supply chain or any other aspect of your food & drink business, please contact victoria.symons@crippspg.co.uk.