Operators across the sector have watched on with increasing incredulity at the crisis engulfing wholesaler Conviviality. As the company behind Matthew Clark and Bibendum fights for its very survival, MCA assesses how the situation escalated so quickly and what the implications are likely to be. Includes comments from AlixPartners’ Graeme Smith and analyst Mark Brumby.

It has been a torrid few weeks for wholesaler and drinks supplier Conviviality.

A profit warning last week quickly escalated – via one embarrassing announcement after another - to the point where questions have been raised about the group’s very survival. We will know next week if it can raise the required funds to stay afloat.

But, how did it get to this point.

MCA spoke to a variety of experts on the industry, with the consensus being that while this does not call into question the supplier chain model itself, it does highlight how when things go wrong, the ramifications can be significant.

One obstacle for Conviviality to tackle will be around credit terms, with the risk that suppliers of the group could begin to demand cash up front, essentially opening up another black hole for a business model already based on thin margins.

One industry source told MCA: “If you have millions of pounds worth of stock going through the system every 30 days, and creditors suddenly change terms, that can completely change the working capital model, it would be cataclysmic.”

Another issue is around credit insurance, with some providers changing their terms amid an increasingly jittery business environment.

“Insurers are withdrawing their services, changing the terms, and suppliers are then going to customers for new terms, which can create massive working capital issue”, the source added.

“That costs money, and the £5m you were going to invest in 10 sites you need to keep in the business for working capital will have a material impact.”

According to Graeme Smith, managing director of hospitality and leisure at AlixPartners, the industry has a collective interest in seeing Conviviality rise out its problems, which he said had come as a surprise to most.

He said: “The challenge in these situations is crisis management. There’s no doubt that the business in terms of what it does, the scale and the brand, are an integral part of the market.”

The crucial step for Conviviality now is to raise sufficient working capital to give customers confidence it can continue to supply in its normal patterns, Smith said.

“If concerns build around their ability to fulfil orders, customers will start to look at look at a contingency.

He continued: “In markets where supply is concentrated among a small number of people, driven by high competition and low margins, you get a high degree of dependence on the end-customer and supply chain.

“That’s fine when everything is working well, but if you get any dislocation in the supply chain, the risk is it will have wider ramifications.

“From a customer perspective, people will be looking at contingency plans. But, the last thing they want is for the company to go out of the sector. They want as competitive supply market as possible.

“There will be a lot of interest in keeping the business going.”

Meanwhile Mark Brumby, of Langton Capital, suggested some competitors could be eyeing an opportunity if Conviviality fails.

He said: ”We think most of the industry wishes Conviviality well.

”However, there will be some direct competitors with Matthew Clark, of course, who think otherwise and the threat to supplies may cause some customers to spread their risks going forward.

He added: “The KFC farce showed just how important supply is and, even if Matthew Clark comes through this virtually unscathed, there could be some changes made by customers going forward.”