Linda Lewis, founder of pizza equipment specialist LLK, has taken a look at the current economic state of the UK catering equipment supply chain:
Right now, the catering equipment industry, along with the wider world around it, finds itself in the midst of a pandemic that has thrown us all off-kilter and into the unknown. The Covid-19 situation has come with lots of challenges for everyone, both personally and commercially, not to mention the tragic loss of lives across the nation and worldwide. My heart goes out to all the families and communities suffering loss, and my thanks go to all the key workers, the true heroes that are working tirelessly to get us through this terrible time.
The world will never be the same again, that’s for sure, and I find myself asking: what will the new normal look like?
I know from a business perspective that things will be very different once we are out the other side of this. We have seen a variety of reactions to this unprecedented situation from our customers and the supply chain beyond.
This testing time has solidified my view that our industry, one that’s purpose is, at its simplest, to supply and install catering equipment, has become more of a financial provider over the years and quite frankly this has now got us all in quite a pickle.
In my view, if someone is looking to open a restaurant, pub, leisure facility, hotel, or indeed any kind of business at all, they first need to seek a financial backer to supply the funding. That way, they will have all the capital in place to pursue their desired project and the many costs associated with it. With a solid financial plan and a budget in place to spend within their means, these entrepreneurs can then proceed with design planning, ordering the goods, and completing the construction and fit out. Since they already have the funds at their disposal, they are then able to pay the relevant suppliers in advance to get the goods needed and to cover the costs of the work that is to be carried out.
This, somewhat bizarrely to me, seems not to be the case with many end users in the market today, particularly many pub and restaurant chains who instead insist on lengthy payment terms from their supply chain.
As an equipment supplier, LLK grants many of our distributors payment terms which allow them to be able to supply the goods and complete the work, before getting the final settlement from their client in time to pay us so that we can in turn pay our suppliers on time.
With some of our higher value items that are built to order, we, quite reasonably in my opinion, ask our distributors to pay a 50% deposit to get the special order put into production. This is often questioned by some of our dealers, even though it is a system that is designed to protect them as well as us. We find that some are reluctant to pay it, simply stating that the end user will not pay them a deposit and they cannot even ask for one. This is inexplicable to me: it should never be a problem for the end user to pay a deposit for goods ordered, as they should have their funding in place already.
Now that everything in the industry has come to a standstill, when we talk to our distributors, we are finding that many of them have simply been told by their customers that they will not be making any payments until this crisis over. I find this shocking and wholly unacceptable. Firstly, many of these end users are organisations that have funds and equity available, but they are simply hanging onto it in what I can only imagine is an attempt at self-preservation. I can understand this instinct, but these companies must consider their poor distributors who have funded some of their customers’ businesses with up to 120 days credit and thus have huge debts to their suppliers that they simply cannot pay without first receiving payment themselves. This selfish attitude from the end users could cause the downfall of many companies in the supply chain who have worked tirelessly to provide for and to support them over many years.
I am dumbfounded that as an industry we have allowed this to happen. We have collectively succumbed to pressure from these customers for us to basically fund their developments, which has now essentially become a requirement of winning their business. Put simply: we are not financial institutions. Banks and investors are in the business of lending money, not us, and we mustn’t let it continue.
These end users have had the goods and services provided, had full use of them to run their businesses, and have profited from them for up to 3 months and it is simply not ok for them not to pay. Nobody leaves a restaurant or eatery of any kind without paying the bill! These companies are cash rich, so I am asking: why are we funding them?
Equally shocking to me is that in this modern age, where remote working should be achievable for all companies, even if only to operate at a basic level, there are some in the industry who have simply shut up shop and sent out generic emails to suppliers which state they will not be paying their bills for the time being. How can this be the case? Surely every company should have at least one person in accounts who is working, even part-time, to organise furlough and other duties that cannot be postponed, and I see no reason why that person can’t deal with suppliers and customer payments too.
We collectively need to be thinking about the future: when this is all over the end users will expect suppliers, distributors and engineers alike to be there, ready and raring to meet their needs, like we always do, but if these companies have not been paid what they’re owed then they simply might not survive to see the other side.
I know that making a stand isn’t easy, and one of the many problems we have as an industry is that there always seems to be another company down the road who is willing to bow under the end user’s pressure to work on a very small margin purely to get the business, or grant them the 120 days credit by leaning on the supply chain. In some cases, those end users, which are generally the big-name chains, even tell us all how much margin they will allow us to make and what the payment terms will be.
These are our businesses and we should run them on our terms.
Why are we accepting this as ‘just the way the industry works’? If we all stand together to put the onus on the end users to finance their own projects, this will ensure everyone in the supply chain gets paid promptly, and we would perhaps not find ourselves in the situation that we are in today.
This is a time for change. Let’s pull together and make this happen, so that we all come back stronger.