Written evidence submitted by the Federation of Wholesale Distributors (FWD) (COV0072)
- FWD (the Federation of Wholesale Distributors) welcomes the opportunity to respond to the House of Commons Environment, Food and Rural Affairs Committee’s call for evidence on the impact of the Covid-19 outbreak on the food supply chain.
- FWD is the member organisation for UK wholesalers operating in the grocery and foodservice markets supplying independent retailers and caterers via cash and carry, delivery and the internet. pre Covid-19 our members made a vital contribution to the British economy and generated annual revenues of £29bn, employed 60,000 people and generated £3bn of gross value added to the UK economy annually.
- The food and drink distribution sector provides a vital link between large food and drink manufacturers and independent retailers and caterers. Wholesale distributors pre Covid-19 supplied up to 330,000 food service businesses and 72,000 retail grocery stores, supporting local high streets and small independent businesses across the United Kingdom. The activity and work of our members is also spread across the regions of the United Kingdom, with a higher than national share of employment in Scotland, the North West, Wales, the South West, the West Midlands and the North East. Including the whole value chain, the food and drink wholesale distribution sector supported 1.4 million jobs; nearly 2.5 times as many as Tesco and more than the next four largest supermarket chains combined.
The impact of Covid-19 on the wholesale industry
- The COVD-19 outbreak has led to wholesalers, who supply to care homes, hospitals and the public sector to operate at huge and unsustainable losses, following the collapse of the foodservice market, the bad debt and short-life stockholding which will largely have to be written off. To give some insight into the scale of the crisis, there are currently 225 businesses in the food and drink industry are in the high-risk category or facing collapse. For example, around 50 have stopped trading, either permanently, or with all staff furloughed and no business taking place. These businesses represent £5.3bn of the foodservice wholesale industry’s £10.9bn turnover, with the balance sitting with larger national operators. There are 600 businesses in the food wholesale sector; the balance mainly serve retail. These high-risk businesses employ 17,000 people directly.
- Those who are still trading are currently trading at minus 80% of turnover. Some will close in the next two weeks unless support is provided, with others within three months at most. These are businesses which were solvent, prior to the enforced outlet closures. While they may have had relatively strong balance sheets, they have high fixed costs, and now bad debts and stock they cannot unwind, and need to remain open to supply care homes and public sector contracts.
- Since the closure of hospitality businesses, some of FWD's foodservice distribution members have lost 95% of their trade. Without urgent financial support the food service market is likely to collapse. This puts the supply of food to care homes, hospitals police and fire stations at real and imminent risk.
- In the short term, the collapse of the foodservice market also jeopardizes the long term recovery post Covid-19 and the future of supply of food and drink into the public sector not just during but also after the Covid-19 pandemic which will lead to structural and provisional problems moving forward.
- Of additional importance, the vast majority of wholesale businesses facing collapse are SMEs: supplying Government and the public sector. The broad base of SMEs in the foodservice sector will disappear, without urgent financial support from the Government, and with it so too will the wealth these companies generate throughout the UK.
Question one: Have the measures announced by the Government to mitigate the disruptions to the food supply chain caused by the pandemic been proportionate, effective and timely?
- We are grateful for the willingness of the Department for Environment, Food and Rural Affairs to engage with the industry and involve FWD in the thinking and planning of measures to respond. We have been working closely with the Department to conduct a survey for our members to identify the disruptions to the food supply chain and develop policies to mitigate this. However, a number of current Government support packages, while appreciated, unfortunately do not provide sufficient support for many of our members businesses.
- The foodservice sector is based throughout the UK and provides significant regional employment, this is now at risk. If the small operators go so too will the broad base of UK employment offered in the regions, notably the north east and west of the country. Therefore, without financial support the most vulnerable in our society, such as those in poorer communities and rural areas, and others providing essential services at this time, will be unable to access the most basic catering needs. There are specific issues where development or delivery of a number of areas could have been more effective which we have outlined below.
The Coronavirus Job Retention Scheme
- We welcome the recent announcement to extend the Coronavirus Job retention Scheme, we believe this should be extended beyond the end of June and a tapered approach introduced to allow staff to return to work gradually while businesses recover.
- While the Coronavirus Job Retention Scheme, is welcome and very necessary, it does not help this industry anywhere near as much as others. Wholesale distributors hold vast amounts of stock. They pay for warehouses, vehicles and refrigeration, and while they employ vast numbers of people, wage costs are a significantly lower proportion of overheads than most businesses.
Extension of delivery driver hours
- We welcomed the Government’s decision to extend the delivery hours to deliver to supermarkets and other food retailers to support the industries response to the coronavirus. The extension meant that food retailers and wholesalers could increase the frequency of deliveries to stores and move stocks more quickly. Ahead of the decision there was consensus from the wholesale and retail industry that there needed to be some form of relaxation to support the supply chain.
- However, there was a substantial delay between the announcement about the extension made by the Department for Environment, Food and Rural Affairs on the 9th March and the implementation by local authorities.
Best before dates and food labelling
- We welcomed the recent guidance by the Department for Environment Food and Rural Affairs, the Food Standards Agency and Wrap on best before dates, redistribution and flexibility on certain rules around food labelling. FWD raised the issue of extending Best Before end dates with Defra and the need for clearer Food Standards Agency guidance.
- While this guidance seeks to increase the amount of food made available for redistribution, these measures have been announced slightly too late and almost £20m-worth of unsold stock – most of it unsuitable for retail – has become unusable and has been sent to landfill. Wholesalers will have to absorb these costs unless financial support is provided.
Relaxation of Competition Law between Supermarkets
- We understand the need to take action to relax competition law in crisis situations to ensure the food supply. Due to their size, there has been a focus on supermarkets to do this. However, relaxation of competition law can have negative consequences for less dominant elements of the food supply chain including for wholesalers that supply to stores.
- There was also little transparency in developing the Statutory Instrument and while we understand pressures on time, we were surprised that a small number of stakeholders were consulted by the Department for Environment Food and Rural Affairs during this process and the timeframes given to provide feedback on legislative change.
- We have also seen very little evidence of the use of the relaxation of competition law at this stage. It will therefore be important for the Department for Environment Food and Rural Affairs, at an appropriate time, to undertake a review of the relevance impact, for emergency measures such as these during the Covid-19 outbreak in relation to future lockdowns or other crises.
Question two: Are the Government and food industry doing enough to support people to access sufficient healthy food; and are any groups not having their needs met? If not, what further steps should the Government and food industry take?
Home delivery services
- Our members continue to do all they can to deal with the food supply challenges they encounter despite the financial pressures they face. Our members have changed their business models overnight to service the general public, to use remaining demand channels to clear stocks and to find new markets or repack existing products.
- They have also adapted by offering online home delivery for individual customers. For example, JJ Foodservice have launched a next day and same-day delivery service for household essentials in the capital. They guarantee 100% of deliveries while supermarkets can often only fulfil 10% of orders.
- However rebuilding volume to replace the 70% of turnover that has been lost is almost impossible and our members are facing imminent collapse.
Supporting vulnerable customers
- FWD members all over the country have joined forces to ensure vulnerable people access healthy food. More than half a million packages of food have been delivered by the foodservice giants Bidfood and Brakes across the UK. Working with Defra, foodservice wholesalers have delivered food to Britain’s most isolated and vulnerable people, who do not have access to friends and family locally to make drop offs for them. The milestone was achieved less than a month after the shielding scheme was launched, with thousands more deliveries planned as the Covid-19 outbreak continues. As part of the programme, partnerships called Local Resilience Forums were formed – including Brakes and Bidfood – to manage local response to the national emergency.
Food2Care initiative
- The Federation of Wholesale Distributors have also been working with the Cabinet Office, Foodservice Online and iWeb to set up Food2Care, a website which seeks to deliver supplies to care homes who are unable to access food due to limits on supermarket orders and the number of available delivery slots. With many care homes relying on making regular trips to the supermarket to stay stocked up, they are increasing the risk of exposing their premises to Covid-19. Food2Care aims to provide them with an alternative. More than 70 national and regional distributors have already signed up to the scheme, with their services accessible through the website when users enter their postcode into the search bar.
What further impacts could the current pandemic have on the food supply chain, or individual elements of it, in the short to medium-term and what steps do industry, consumers and the Government need to take to mitigate them?
- We welcome a number of Government’s initiatives however, without financial support, businesses will not be able to keep trading as they are squeezed by money owed to them by foodservice operators not being paid, which means they cannot in turn pay their own suppliers who are not extending credit. If wholesalers cannot pay their suppliers they will be placed on stop.
- With many businesses in a perilous position, having received very little by way of Government support and as we look towards the ‘exit strategy’ or the economic re-start, it is critical that the food and drink wholesale sector is adequately supported. Support will ensure that food can be supplied to critical public service infrastructure, including schools and care homes. It will also ensure the survival of businesses up and down the country which are bolstering local economies, SMEs and employment. We have outlined below what steps the Government can take to support the industry further.
A loan for start-up or credit insurance should be underwritten by the Government
- Wholesalers desperately need support in the form of credit or a loan to help them re-start once the Government enacts its coronavirus exit strategy. As mentioned, the food and drink wholesale sector is unlike retail with cash coming through its tills. Instead, it is built on credit both from customers and suppliers. Wholesalers typically give their customers 4-5 weeks’ credit and get roughly the same terms from their product suppliers. As a result, it is now facing enormous bad debt as many of its customers have now closed and some will not reopen and are not paying bills, yet suppliers still require payment.
- Delivered wholesalers operate on 15-25% gross margin but only 1% EBIT. It is all about fast goods one way, fast cash the other. This is not a supply chain that can pause, let alone come to a sudden catastrophic stop since wholesale distributors hold vast amounts of stock, they pay for warehouses, vehicles and refrigeration etc.
- Furthermore, loans on commercial terms are unaffordable at a net profit of 2%, and the CBIL or CCFF are inaccessible to many wholesalers. Additional borrowing on wholesalers’ slim margins means profits would be wiped out for years to come, and with no trade coming in, the borrowed money would go straight to the suppliers whose products the wholesalers are left holding.
- Credit insurance, a service that has largely been removed, should therefore be underwritten by the Government and loans should be made more available to food and drink wholesalers who are struggling financially during this uncertain time. These measures are necessary to mitigate further disruptions to the food supply chain.
Corporation Tax relief for food write-offs
- We believe Corporation Tax Relief for food write-offs would help the industry during this difficult time. As mentioned, the Covid-19 pandemic has had a devastating effect on the food and drink wholesale sector. Along a number of other public sector contracts our sector also primarily supports the hospitality sector industry and has therefore seen approximately 70-80%, and in some instances as high as 95%, of its volume wiped out overnight. As mentioned, the sector is unlike retail with cash coming through its tills. Instead, it is built on credit both from customers and suppliers. As a result, it is now facing enormous bad debt as many of its customers have now closed and some will not reopen and are not paying bills, yet suppliers still require payment.
- Furthermore, a loss of 70% volume, almost overnight, has left most foodservice wholesalers with significant amounts of excess stock, much of which has limited life. The combined impact of the crisis means many businesses will not be able to survive such multiple financial impacts. There is currently £20m-worth of unsold stock – most of it unsuitable for retail – will be unusable within the next three months.
- Our members continue to do all they can to deal with their challenges, many have changed their business models overnight to service the general public, to use remaining demand channels to clear stocks, to find new markets or repack existing products – however rebuilding volume to replace the 70% of turnover that has been lost is almost impossible.
- By nature, the foodservice market supplies the catering industry and pack sizes are designed as such for this purpose and not suitable for many home consumers. As such, hundreds of thousands of pounds and soon to be many millions of good quality food products are being written off every day and sent to landfill as we pass use by and best before dates. All of this is happening in an environment where foodbanks, charities and local authorities are crying out for food – though often for retailed size canned goods or pasta.
- In the absence of any effective support package for many of our members, who are essential businesses across the UK, we are asking for your support for our members in the form of Corporation Tax relief for all food which has to be disposed of, or is donated to charities, foodbanks or local authorities. Our request is that 70% of food donated (appropriately evidenced) is supported by tax relief funded in a 1-month period from associated donations. We hope you would consider this request with an open mind and in the spirit of our sector seeking to support vital food businesses.
Business rates relief should be extended to include wholesalers
- Whilst the business rates holiday scheme is a great initiative, unfortunately wholesalers have been completely overlooked when considering this relief. Our members are already extremely financially strained by money owed to them by foodservice operators not being paid, which means they cannot in turn pay their own suppliers who are not extending credit. If wholesalers cannot pay their suppliers they will be placed on stop.
- The business rates holiday for 2020-21 should therefore be extended to wholesalers, who are in urgent need of financial help during this uncertain time.
The Governments Exit Strategy should be well timed
- As key workers, many of our members continually supply to hospitals, schools, care homes etc, however a large proportion of their businesses such as supplying to restaurants and pubs has come to a complete standstill. Therefore, business in the food and drink wholesale sector will need a minimum of four weeks’ notice to get up and running again and will need at least eight weeks to sort old stock and get new stock in to start trading.
- We urge the Government to consider the timing of re-opening businesses carefully, choosing the wrong time could financially cripple our industry and a “second wave” could force a number of companies into liquidation. Furthermore, re-opening at the same time as the schools, which could potentially be in September would be unsustainable. The industry is already under huge strain to supply goods and this would put too much pressure on the food supply chain. A phased approach to re-opening will therefore be necessary.
- Furthermore, all licensed premises such as pubs and restaurants should open together to stop wholesalers from losing customers. For example, pubs and restaurants buy food from a foodservice wholesaler and alcohol from an on trade specialist. If restaurants were to open first, the on trade wholesalers would be at risk of losing customers to full line operators of food and alcohol. To mitigate this risk, licenced premises should be opened at the same time.
Wholesale store colleagues
- The Covid-19 outbreak has presented challenges for wholesalers as they are under significant pressures due to their workforce depleting as colleagues are required to self-isolate whether because they or a member of their household have Covid-19 symptoms. Members of staff are needed to serve customers, restock stores and deliver services and absenteeism has been relatively high in our industry.
- Our industry has attempted to mitigate staff shortages by onboarding new staff however this has not been possible for a number of our members who are financially unable to do this. This is why it is so important to continue testing key workers who have symptoms of Covid-19 and expand this to make the process easier.
- However, the two-step registration process for the portal is resulting in significant delays for wholesalers seeking to refer employees for testing. Widespread testing is essential and the most effective way to return individuals to work.
Further action from Government
Tobacco Track and Trace
- Wholesalers are also facing regulatory burdens on top of pressures from the Covid-19 outbreak. For example, under current Tobacco Track and Trace regulations cigarettes and hand-rolling tobacco products have to be sold through by wholesalers by the 20th May 2020. Those that are not cannot be sold and will lead to surplus worthless stock.
- As mentioned, FWD members have seen a 70% decline in trade due to Covid-19 pressures. It will therefore be extremely challenging for wholesalers, who have seen their markets disappear overnight, to sell through all non-Track and Trace stock before the 20th May 2020, during this uncertain period for the industry.
- According to a betterRetailing survey of 39 shop owners, 70% still have non-compliant stock in their gantry. A further 10% were unsure whether they had non-compliant stock.[1] Any products that are found to not have UIDs will therefore be liable to forfeiture and seizure by HMRC. At a time where the industry is already struggling financially due to Covid-19, this regulation is likely to have a damaging impact, as an abundance of stock becomes worthless on the 20th May 2020.
- Whilst we are very supportive of the Tobacco Track and Trace system our concerns relate to its timing. The sell through period deadline makes being compliant incredibly challenging for wholesalers. It is understood that certain changes to the Tobacco Track and Trace system will need to be made to enable the UK to have full regulatory control at the end of the transition period. However, there is currently a lack of clarity over what these changes would be. If the Track and Trace system is going to be suspended on the 31st December 2020, the sell through period should be delayed until a UK system is introduced. This would give wholesalers and retailers the necessary time to become Track and Trace compliant and sell through their stock.
National Living Wage
- The Federation of Wholesale Distributors are already under huge financial strain and despite this on the 1st April National Living Wage increased to £8.72 an hour. Whilst we are supportive of NLW, increasing this further to £9.21 in April 2021, as suggested by the Low Pay Commission, would cause mass redundancies in our industry. Given the circumstances we urge the Government to postpone the rise in NLW next year until the pressures from Covid-19 have eased.
Environment Bill
- The Environment Bill, which is currently in Parliament, will introduce a wide range of measures that will impact businesses, including the introduction of a Deposit Return Scheme which will require retailers and wholesalers to take back drinks packaging in-store. In light of the pressures facing the industry we believe that the Government should delay the implementation of DRS to give wholesalers more time to prepare and invest in the infrastructure needed to be put in place. The legislation will pose operational challenges for wholesalers and with social distancing measures in place, the Government should consider whether it is feasible to locate return points in-store.
- We also urge the Government to consider regulatory alignment between England and Scotland in relation to DRS. A divergence in the way such schemes are implemented in Scotland compared to the rest of the UK would have a major impact on businesses that regularly transport goods to all parts of the UK, such as FWD members.
Excise Duty Relief
- We believe the Government should extend VAT bad debt relief to excise duty. We would also welcome the relaxation of the conditions for VAT bad debt relief, particularly the 6 month threshold. The relief should also extend to supplies made during the period from 1st March 2020 until a point when meaningful trading can begin again.
Sugar Tax
- We have been in contact with Government departments to discuss the possibility to claim back the sugar tax of unsold product going out of date due to the lockdown. At present the only people who can claim back the Soft Drinks Industry Levy are those who paid it initially, however, claims can be made on lost or destroyed drinks which we welcome. We believe wholesalers and the original levy payer should be allocated repayment in the exceptional circumstance of Covid-19.
Plastic initiatives
- Food production, storage and distribution have an unavoidable impact on the environment. However, FWD members seek to minimise this through initiatives that increase the efficiency of the supply chain, from the producer to the consumer. Our members’ extensive initiatives include route optimisation technology; driver training; low carbon fuels; back hauling and recycling of waste and packaging; reducing packaging, encouraging sustainable alternatives to plastic; recycling used cooking oil and reducing waste to landfill.
- The use of packaging is particularly prevalent in the out of home sector, which is an integral part of the wholesale industry. As such, any initiatives to reduce the use of single-use plastics would greatly impact our members. As policies in this space are pursued, FWD would be keen to work closely with Government and be consulted on any measures. It is crucial that members are adequately prepared and have enough lead in time to sell stock which could be subsequently taxed or restricted and to work with their customers to source alternatives.
Fuel duty
- We welcome the announcement by the Chancellor to freeze fuel duty for another year. FWD members pre Covid-19 operated over 7,000 delivery vehicles which made over 200,000 deliveries every week to small businesses in every postcode of the UK.
- We are calling on the Government to maintain the fuel duty freeze and to not impose any further increases to operational costs for members. In the high volume, low margin wholesale model, increases in operating costs cannot easily be absorbed and can result in increased costs in the food and drink supply chain. Furthermore, with the pressures and costs from Covid-19 an increase would be unsustainable for the wholesale sector.
How effectively has the Government worked with businesses and NGOs to share information on disruptions to the supply chain and other problems, and to develop and implement solutions? How effectively have these actions been communicated to the public?
- We acknowledge the excellent work undertaken by the Department for Environment Food and Rural Affairs. We have worked closely with Defra through a large number of working groups such as the Food Resilience Industry wholesale sub-group, daily ministerial calls as well as direct contact with key officials. We have also been working closely with the Department to gather data from our members to highlight the substantial impact Covid-19 has and is having on the wholesale sector. Following this, we hope more direct support packages for the wholesale industry will be announced.
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