Blog: Dean BestCrisis crunches food companies

Dean Best | 13 October 2008

In ordinary times, flicking through the Sunday papers on a balmy autumn afternoon in London would be one of life's little pleasures.

However, these are not ordinary times.

The news right now makes for grim reading. Last week, the Dow in New York suffered its worst week ever as panic over the global economy gripped the stock market. In the UK, the FTSE endured its worst week since the crash in 1987. And in Europe, the major stock markets dropped in value by at least a fifth. All this despite the unprecedented move from central banks around the world to cut interest rates in a bid to free up the world's frozen banking system and inject some confidence into the wider financial system.

Over the weekend, the G7 met in Washington for frantic talks on the crisis. European leaders then met in Paris on Sunday (12 October) to hammer out a rescue package for banks on the continent – seen as vital to stem any further convulsions on the financial markets.

According to Dominique Strauss-Khan, the head of the IMF, the global financial system is on “the brink of systemic meltdown”.

A perilous time, then, in which to do business. The impact of the credit crunch is already being felt in the so-called “real” economy. In the wake of Sainsbury's results last week, just-food took an in-depth look at the impact the credit crunch is having on UK retailers. With cash-strapped UK consumers trading down, the country's grocers are focusing more on value, a strategy that has paid dividends for Sainsbury's, although possibly one that could have hurt the company's margins.

Elsewhere, a profit warning came from UK-based convenience food group Uniq, which blamed a “significant deterioration” in economic conditions for its financial problems. Fellow convenience food firm Bakkavör relinquished its shares in Ireland's Greencore, pointing to the “turmoil” in the financial markets. And, perhaps in a sign that the global economic chaos is affecting the hitherto buoyant emerging markets, Russia's largest grocer, X5 Retail Group, said that, despite rising sales, it would scale back its plans for expansion due to the financial crisis.

The concern is, if some of the the food industry's largest firms are suffering amid the economic chaos, what hope for the smaller players? The collapse of the banking system, the freezing of the financial markets and the clogging up of credit could prove the death knell for scores of businesses across the sector.


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