In This Article:
Greencore has suggested it cannot absorb all the additional costs from the UK government’s budget measures, meaning more pricing pain for the consumer.
The food-to-go and convenience foods business reported full year like-for-like sales growth today (3 December) of 3.4% but noted the prevailing “muted consumer confidence” through fiscal 2024.
Looking ahead to the new year, the private-label supplier estimates a £7.5m ($9.4m) impact on the business from the increase in the national living wage and Labour’s hike in employer national insurance contributions.
Finance chief Catherine Gubbins said Greencore “had anticipated the national living wage increase but national insurance was completely unanticipated and unbudgeted”.
She added the £7.5m will impact Greencore in the 2025 financial year from the introduction in April, through September, or an annualised £15m.
“The new government spent a lot of time telling everybody how awful it was and then put a pretty material budget through the system, with increased costs into business, which ultimately are going to end back up being footed by the consumer,” Greencore CEO Dalton Philips told Just Food.
He added: "The national living wage would be £20-plus million through the business. Ladder it all up, and it's a lot of cost going through the supply chain, not just us but an industry that really doesn't have the capacity to absorb it.
“It's a pretty strong ladder, from all the retailers saying what the government had done was going to impact pricing for the consumer.”
Labour headwinds
Greencore generated £1.81bn in revenue in its fiscal 2024. Volumes were up 1.6% with further pricing of 1.8%. The gross margin rose 350 basis points to 33.2%, while profit before tax increased 36% to £61.5m.
However, Greencore pointed to a “significant labour cost headwind” from the budget that would require “further efficiency initiatives”.
“I just wonder, has the government really thought this through?” Philips asked.
“These costs have to go somewhere. In our particular case, first and foremost, before we go and have any conversation with a retailer, we’re going to sit down and look at our own cost base,” he said.
Efforts have already been made under Philips to trim costs by consolidating what had been five business units into a consolidated group structure, and the closing of a UK soups plant.
He said the dynamics entail working from the top of the P&L, looking at costs that can be taken out from engineering, planning, labour and eliminating waste.
“Having said all of that, you can't absorb £15 million. You have to go back to the retailers, and I think they're aware of it,” Philips said.