Two of the north-east’s biggest food firms bounced back strongly following the pandemic only now to be faced with the fresh challenge of hugely rising costs.
Cost of raw materials, energy and supply chain issues are all impacting trade with the effects being felt at both Inverurie-based baker JG Ross and Stonehaven-headquartered food ingredient manufacturer Macphie.
Bosses at JG Ross have taken the decision to increase stock holdings of “critical ingredients to minimise the risk of production disruption”.
While Macphie chief executive Andy Stapely described the last financial year as one of a “period of recovery following a challenging 12 months”.
JG Ross has been hit with big increases in ingredients including pasta rising 74%, sugar 46%, flour 29%, butter and margarine between 75 and 100%, and red meat 30%.
Commercial director Graeme Ross said: “The last 12 months we have seen cost increases.
“Flour jumped about 29%, fats between 75 and 100% and red meat is still climbing. We had three increases last year.
“It’s good for the farmers because it is giving them some money back.
“Cheese, pasta and eggs as well. The macaroni for our pies jumped 74%. It’s just absolutely crazy.”
The rocketing costs has led to the business having to increase prices for customers.
Graeme said: “We had two prices increases last year in February and June. Over the two the cumulative impact of the cost increases was just under 10% on retail prices.
“That was absolutely bare minimum. It’s about finding a balance.
“Obviously I would have liked to have recovered everything but if we did that we would have probably lost some customers.”
Challenging conditions
The challenging price conditions come on the back of a strong recovery from the pandemic.
JG Ross saw its turnover reach £14.1m in its accounts for the year ending March 2022, up from £10.3m in 2021.
Meanwhile pre-tax profits were more than double at £2.1m compared to £732,000 in 2021.
Production director Cameron Ross said: “Profitability has significantly improved due to growth in turnover, increased efficiencies, the benefit of retail business rates relief along with managing energy and ingredient supplies and costs.
“Trading conditions however, are again much more challenging due to increased competition and the impact of the Ukraine conflict on supply and cost of ingredients, packaging and energy in particular.”
He added Food to Go continued to be a “growth opportunity” for the business.
Impact of energy costs
Speaking about the effects of energy costs Graeme said: “It’s been a mixed bag.
“In March last year our bakery contracts were due for renewal and I could see energy prices climbing faster than normal so we locked in at that point.
“They were big increases. We were looking at just short of 30% on electricity and 43% on gas.
“It seemed really high and everything was pointing to going worse so I went with it and did two and three year deals. I had not appreciated how good a deal that was.”
Last year JG Ross appointed its first non-family director when Robert Gordon took up the post of operation director.
‘Significant inflation’
This was compared to £44.5 in March 2021.
However, the firm which makes products used by bakers, pubs, restaurants, hotels, ready-made food firms and caterers around the world, has also been feeling the effects of inflation.
Mr Stapely said: “In the final quarter, we then started to see significant inflation in raw material pricing – the full effect of which was not felt during the year due to high levels of raw material inventory already held.
“Having restructured in the previous year in response to the pandemic, we were able to leverage the lower cost base to deliver improved results.
“However, as volumes increased through the year, overhead costs increased again to support higher demand. In the final quarter, we then started to see significant inflation in raw material pricing – the full effect of which was not felt during the year due to high levels of raw material inventory already held.
“As with much of the wider food industry, we continue to face considerable headwinds on raw material costs and general inflation, coupled with availability and supply chain issues.
“Despite the current economic uncertainty and market instability, we see a range of strong opportunities in the diverse markets we operate. Our focus remains on recovery and growth and we start the new year with a clear plan to grow our core proposition.”
Pre-tax profits at Macphie’s, which employs more than 250 people, were £3.4m up from £626,000 in 2021.
