Report: 'Squeezed Middle' need support for foodservice restart to succeed

Foodservice eating out produce on plates

More than 20 organisations from across the produce supply chain warn that food and drink suppliers to the hospitality and foodservice sector risk being overlooked as government considers how to re-open the industry.

Those businesses in the 'squeezed middle' have not been given the same level of Government assistance as the businesses they supply, despite being as hard hit by the overnight closure.

The report says that the level of support available to the 'squeezed middle', is, at current, poorly focused and will not deliver the recovery plan the UK Government is working towards. Maintaining Post-Covid-19 Capacity in Hospitality and Food Service Supply Chain Businesses – 'The Squeezed Middle' has been produced by the FDF-convened Food and Drink Industry Roundtable.

“Throughout the pandemic, the food and drink industry's hidden heroes have been working hard to keep the country fed," Ian Wright CBE, Chief Executive of the Food and Drink Federation said. "But those companies who supply the foodservice and hospitality sectors have seen their business disappear overnight, and yet have not been afforded the same Government assistance. The hospitality and foodservice sectors will play a vital role in contributing to the UK's economic recovery, but any restart will be stymied without further support for those food and drink manufacturers operating in the squeezed middle.”

Maintaining business liquidity remains a huge concern for the 'squeezed middle'. Research undertaken for the report shows that fewer than half of food and drink manufacturers have applied for Coronavirus Business Interruption Loan Scheme (CBILS) or Bounce Back Loan Scheme (BBLS) support.

Concerns over incurring additional debt and associated interest payments were cited as the main reason. At the same time, many companies are facing up to 50 per cent of their customer base delaying payment or not paying outstanding invoices.

While the UK Government's furloughing scheme has been popular and effective amongst the 'squeezed middle', there are concerns about whether the hospitality and food service markets will have recovered to viable levels when it ends in October. There are fears that removing the support too early would pose serious risks to businesses and slow the UK's economic recovery.

“Many of the 'squeezed middle' are often successful family owned SMEs, supplying the hospitality and foodservice sectors, and are now facing collapse," Richard Harrow, Chief Executive of the British Frozen Food Federation said. "Support for this important sector is vital to ensure they continue to manufacture and supply world leading products, making the market so dynamic and vibrant. Their continued existence will be critical as the economy starts to recover.”

The UK Government's decision to underwrite Trade Credit Insurance was widely welcomed across the food and drink industry. However, many businesses continue to report concerns that trade credit insurers are not adjusting their criteria to take into account the pandemic, making unrealistic demands on businesses and their debt management.

The report outlines a series of practical steps Government can introduce to ensure the squeezed middle are able to play their role in a post-virus recovery. These include:

  • Businesses supplying into the hospitality and food service industries should continue to receive furlough support through the UK Government at a rate of 80 per cent of salary contribution until those markets return to commercially viable levels.
  • The UK Government should place a requirement on the trade credit insurance industry to develop best practice rules of operation which include greater transparency and formal notification of the reason(s) for refusal or withdrawal of cover.
  • Insurers should be required to reinstate reduced or withdrawn cover back dated to 1 March 2020, except where there are clear and identifiable reasons as to why this would no longer be appropriate.
  • Governments should provide more targeted support for the 'squeezed middle' that does not incur additional business debt e.g. a relaxation of current rules for Apprenticeship Levy funds to allow businesses to maintain existing employment.
  • Governments should create schemes for small, medium and micro businesses within the 'squeezed middle' that provide initial cashflow injections to businesses requiring support to secure orders for materials and/or build stock in readiness for the recovery of customer demand.
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