All is not doom and gloom though. The second part of Plimsoll's study, concentrating on companies outside the elite 100, has found that emerging suppliers are increasing sales at three times the rate of their larger competitors, delivering four times the profitability and showing five times the return on investment.
"The number of loss makers is startling," says Plimsoll senior analyst David Patterson. "We're talking about the bottom line. It's well established within business development that companies can make losses from time to time. But when the proportion of companies posting losses is pushing up towards a third, it does lead one to think that all is not well at the top of the market."
THE COST OF COMPETITION
Quizzed about factors behind this current scenario, Patterson cites a number of issues. "It's extremely competitive," he begins. "Also, when you are talking about companies of this scale, the increasing costs of overheads, raw materials, and staff costs take a massive toll. 20% of sales are being eaten up by salaries alone."
Some are struggling to such an extent that Patterson fears for their future: "Challenges such as the ability to incorporate new recycling legislation, as well as other legislative shifts that we are seeing, are going to cause massive difficulties once their ability to address change is compromised. Some certainly look to be heading that way."
The plight of many of these companies has been further highlighted by the success of smaller competitors. "Larger companies are being made to look lacklustre," Patterson explains. "A lot of this falls back to anecdotal stereotypes but it does look as though many of the smaller firms are hungrier and leaner. Their performance is extremely encouraging."
When quizzed about whether such success is merely down to size, Patterson is diplomatic. "There is bound to be a glass ceiling at some point," he allows. "Once you are chasing those bigger contracts and moving away from your niche market, it is clear that some compromises have to be made.
"You could argue, however, that they are being managed in such a way as to be able to react quickly, tackle core issues and not display the inertia shown by some of their larger competitors."
One of the smaller companies that Patterson singles out for praise is Rowlinson Packaging Ltd, a supplier of specialist timber and plywood solutions. Its recent experiences contrast sharply with events at the top of the market. "We've just had two record years on the bounce," Rowlinson's sales director Richard Bundock reveals proudly, "that's in terms of both profit and turnover."
But why, while those at the top end struggle, is his company going through such a boom period? "Because, rather than prescribe, we listen to what the customer wants," Bundock replies.
"A lot of the major companies are so set in their ways that they miss the opportunities – if you can't be reactive then you don't win the business." And are the very large companies able to react quickly enough? "I don't think that they're incapable of it but I do think that with their massive manufacturing investment, they often need to generate the type of business they want. This might not quite be what the customer wants and it becomes harder to react to the market place. We can react within a few weeks."
The onus does appear to be on the larger suppliers to catch up and David Patterson believes that they cannot be unaware of this.
"If you look at their sales performance and ability to improve margins on what is basically a level playing field," he warns, "the situation is unsustainable. The top companies must acknowledge that the market is saturated and demand has peaked. If you believe consumer trends, it could even be contracting.
"These companies are going to have to take measures to rectify the situation because they cannot afford to carry on losing money. Loss is bearable for a time but shareholders will not put up with it for long, especially as interest rates rise. They will have to hunt down these emerging suppliers and, whether it is by acquisition or following examples, start to dominate new niche areas."