How do I check a food processor’s reliance on one grocery chain?
Work out what share of sales, and of profit, goes to that one chain, then read the terms that govern the relationship. Ask how secure the listing is, how the chain pays, and what happens if the chain drops a product. A big share is a risk you can only weigh once you know those details.
Ask for sales by customer over several years and see how the chain’s share has moved. Then look beyond sales. Chains often ask for promotional support, listing charges, returns and price cuts, so the profit from that account may be much smaller than its sales suggest. Ask for the margin on that customer compared with others.
Read the paperwork. What agreement sets the terms, how long does it run, and can the chain end it or change the terms with notice? Ask your lawyer to look at it. Ask how the chain pays and how fast, since slow payment strains the cash of a small processor.
Ask how the owner would cope if the chain left. Are there other customers, other product lines, or private label work that could fill the space? Has the owner tried approaching other retailers or food service buyers? Check who deals with the chain’s buyer, and whether that relationship depends on the owner alone. A processor with a strong second customer is in a different position from one with none. Ask for a few years of order patterns from that chain too. Sudden drops or large swings in orders can show how closely the chain manages its shelves, and how exposed the processor is.
Key takeaways
- Compare the chain’s share of sales with its share of profit.
- Read the terms: length, changes, charges and payment speed.
- Look for other customers that could replace it.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentAccounts receivable
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 03Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
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