Many in the market are finding it difficult to pass on the pain of cost inflation to their customers as competitive pressure is restricting their pricing power.
Lead analyst and author of the new Plimsoll Analysis has explained the growing problem in the market: “Whether its fuel, materials or wage demands every company in the UK Construction industry is being squeezed by ever increasing costs. 43% of companies have seen their gross margin fall in the latest year. Unfortunately, many are reluctant to pass on price rises for fear of losing customers to cost savvy competitors. However, falling profit margins across the industry is the first warning sign that this strategy has become unsustainable.”
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Pattison continues: “Over the past 2 years the average profit margin in the UK Construction industry has fallen to 2%. More worryingly, 217 companies are losing money with 108 of these doing so for the 2nd year running. These companies face a tough decision – protect their market share and continue to lose money or adjust their prices to reflect their increased costs. Without refocusing on the bottom line, many of these companies will simply run out of cash.”
Pattison goes on to explain that it’s not all bad news though and that many companies are getting it right: “461 companies have managed to actually increase their profit margins over the same period. In all 783 companies have managed to stay in the black despite rising costs. Clearly, operating profitably in the UK Construction industry is difficult but not, as yet, impossible.”
(GK)
