In our latest City A.M feature, Rob Hulse, LDF Head of Channel Development, looks at the challenges that the food industry faces when looking to finance new equipment.
The food and drink industry is the UK’s largest manufacturing sector, contributing about £95.4bn to the economy every year. It is also one of Britain’s biggest exporters. Out of a total of £12.3bn food and non-alcoholic drinks exports in 2015, British businesses sold an impressive £580m of chocolate overseas, while cheese and salmon exports were worth £449m and £496m respectively.
With the industry’s great scale, however, comes great responsibility – not least in its ability to accommodate frequent changes to legislation by acquiring the right equipment to meet both productivity and environmental goals.
The industry has managed to reduce CO2 emissions by over a third since 1990, but with exports on the rise and robust demand for British products at home, how businesses go about covering the cost of new equipment is an increasingly important consideration.
And as a highly competitive market, where continued increases in productivity are vital, this isn't a sector where businesses can afford to stand still. The industry spends about £325m on research and development every year.
While the major global players within the market have no trouble funding the significant levels of investment required to support continued development through cash flow, for many smaller businesses operating within the sector, it can be a very different story.
With traditional funding often closed off for these firms, part of the solution can come from businesses that supply equipment to food and drink firms. Indeed, rather than relying on discounting, offering an asset finance solution to spread the cost of a purchase can be a simple and effective way of helping to secure more sales. Using asset finance as a means to acquire plant and machinery can assist a wide range of businesses within the food sector, helping them to not only invest when it matters most, but also ensuring they are able to keep pace with national and international competition.
One such business already harnessing the benefits of equipment finance is food cutting machinery producer TREIF. In late 2015, the company began to provide an asset finance option to its customers to help ease pressure on working capital. In the year the service has been live, TREIF has seen a number of deals secured through finance that would otherwise have been lost based on cash flow, with an estimated one in five sales positively impacted through the availability of a finance solution.
TREIF managing director Arthur Pynenburg says that “there is often a lot of complexity and risk for a food business to weigh up before they are able to consider the investment in new equipment. But offering a simple finance solution can often be a game changer."
Whether you are a producer or a equipment supplier into the sector, the challenge of investment is a shared consideration.
Traditional finance channels aren’t always an option for smaller producers and suppliers and so developing sound relationships with the right financing partner is vital. Food and drinks businesses, which make such a strong contribution to the health of the wider economy, will be better able to spread the cost of asset purchases, R&D, business development and even more regular outgoings such as tax bills and VAT payments.
You can also download our equipment finance guide for Processing and Packaging Machinery equipment suppliers, to learn how offering a finance solution can help you win sales and overcome today's market challenges.