A BIITER supermarket price war is threatening the survival of British food suppliers and small high street grocers, according to research from business recovery specialists Begbies Traynor’s Red Flag Alert.
The Q4 2014 research, which monitors the financial health of UK companies, discovered that the UK’s food retailing industry experienced one of the sharpest sectoral increases in ‘significant’ financial distress, leaping 58% to 4,552 struggling businesses compared to the same quarter in 2013.
Yet the worst-performing sector was the UK’s food and beverage manufacturing industry. Companies in this sector, many of which supply the major UK headquartered supermarkets, suffered a 92% increase in ‘significant distress’, with 1,410 businesses struggling, compared to 733 at the equivalent stage last year.
The statistics show that the UK’s SME food retailers and suppliers have borne the brunt of the enduring price war between the UK’s supermarket giants, who have been slashing prices, while squeezing suppliers’ margins and extending payment terms in a bid to offer consumers the lowest prices available in today’s competitive retail environment.
The number of smaller food retailers in ‘significant’ distress rose by 61% to 4,388 in Q4 2014 from 2,731 last year (some 96% of all struggling food retailers in the UK), while there was a 113% increase in the number of SME food and beverage manufacturers suffering ‘significant’ distress in Q4 2014 to 1,240 from 582 last year – some 88% of the total.
Julie Palmer, partner at Begbies Traynor, said: “A perfect storm is brewing for SME food suppliers at the bottom of the food supply chain, with many suffering a double hit from larger suppliers demanding “loyalty” payments as well as vanishing margins as a result of the inevitable aggressive supermarket price war. Adding to their misery, the UK’s food producers and suppliers have failed to see any benefit from the rise in popularity of the German discounters Aldi and Lidl, since much of their canned and packaged stock is sourced from overseas.
“With shocking increases in distress among the supermarkets’ main suppliers, the largest chains need to tread very carefully if they want to prevent a new crisis creeping up through their supply chain. Even the government’s appointment of a grocery code adjudicator last year seems to be having little impact, with industry insiders reporting that the new watchdog lacks real powers and is still failing to protect producers from being squeezed by the supermarkets.”