Letter from the Scottish Wholesale Association to the Convener, Local Government Housing and Planning Committee, 27 October 2021
We note the Local Government, Housing and Planning Committee are currently taking evidence into the Valuation and Rating (Coronavirus)(Scotland) Order 2021 which is before Parliament. The Scottish Wholesale Association (SWA) would be keen to present evidence to you and your Committee colleagues on this issue.
The Scottish Wholesale Association is the official trade body for Scotland’s food and drink wholesaling sector which represents a significant part of the food and drink supply chain. SWA members supply products to 1/5th of the total food retail sector through the 5,000 independent convenience stores as well as 30,000 catering, hospitality, tourism and leisure businesses and public sector establishments including schools and hospitals.
Given the nature of their business, most wholesalers require large storage buildings and non-domestic rates remain a significant cost. The wholesale sector tends to employ a high turnover, low margin business model with average pre Covid net margins of 1.3%.
90% of the sector is made up of Scottish family run SMEs and the pandemic has had a devastating impact on them with some operating at only 5% of pre-covid sales up until April 2021. This was particularly evident within on-trade wholesalers purely serving licensed hospitality venues and in the more remote parts of Scotland, heavily reliant on tourism.
The Scottish wholesale sector is still under severe financial pressure due to Covid while our members now face rising fuel and workforce costs as well as the well-publicised labour shortages and subsequent stock availability issues across our marketplace.
Our most recent members survey undertaken this month showed that year on year sales reductions compared to 2019 ranged from 10-15% for one major UK foodservice wholesaler to 60% for a central belt food wholesaler. The average sales drop amongst those experiencing a reduction was 32%.
Highland & Islands businesses are particularly concerned as they have had 2 sets of winter losses, a summer of losses and now face a 3rd winter. For example, one wholesaler in April & May 2021 saw sales of 10-50% of normal levels and June to Sept sales are between 65 to 78%. Growing Covid case numbers have led to increased anxiety about the possibility of further Winter market restrictions.
From the initial days of the pandemic in March 2020 it has been clear that a lack of understanding of the role wholesalers fulfil in the delivery of food and drink may have led to a reluctance amongst local authorities and other agencies to provide financial grants to the majority of SWA members.
Non-domestic rates relief has been made available throughout to our sector’s customers in retail, hospitality, leisure and tourism, who the Committee heard from on 26th October, but not to the wholesale businesses impacted directly by their closure and the restrictions on those businesses. Marc Crothall from the Scottish Tourism Alliance rightly highlighted the plight and critical importance of the supply chain.
While many food retailers including supermarkets have experienced increased profits during this period, foodservice and licensed trade wholesalers have experienced devastating drops in turnover and income, increased debt and significant mental and financial stress.
Throughout the past nineteen months we have worked with the Scottish Government and we appreciate the financial support some of our members received, initially through the PERF and then through the Wholesale Sector Resilience Fund awarded to many wholesalers last December. No further financial assistance has been forthcoming for our sector since then. Meanwhile, the wholesale sector remains caught in a perfect storm of crisis with rising costs, staffing, debt, cash flow and supply chain issues causing major concern.
While we engage regularly with Scottish Government officials we have not been particularly consulted on this affirmative motion and would suggest further engagement with business should be undertaken. We have previously raised the UK Government’s initial statement on 25th March 2021 on this issue with them as the Chancellor made it clear the available £1.5 Billion “Business Rates Relief Fund” was to be used to support businesses which had not had rates relief to date i.e outside the retail, hospitality and leisure sectors. He specifically drew attention to wholesalers as an example of such businesses. Willie Coffey MSP and John Lamont MP have both raised these matters on behalf of SWA members.
While there are £145m of consequentials due to the Scottish Government as a result, the Scottish Government have not received yet received these funds. SWA believe this delay is partly due to the UK Government decision to include these rates relief changes within the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill which is currently at Second Reading in the House of Lords.
However, the need to support Scotland’s wholesalers remains urgent. Without access to rates relief or other financial support many Scottish wholesale businesses will continue to struggle with consequential impact on the supply of food and drink.
While we welcome the Scottish Government’s commitment to pass on all of the consequentials in business support we have no detail of whether or not our sector will be eligible. We, therefore, remain concerned at the loss of the rights of our members to retain the existing MCC appeal options given the ongoing challenges they face.
We note that the next revaluation is scheduled to take effect on 1st April 2023 based on rental values at 1st April 2022. It will be critical that, in due course, the 2023 NDR Revaluation is robust and accurately reflects the very negative economic environment faced by Scotland’s food and drink wholesalers and other businesses.
Should you wish, I would be delighted to discuss this further with you, or the committee, directly.