Member Article

More than 100 food supply companies face administration amid supermarket wars

The number of UK’s food and beverage retailers experiencing ‘significant’ financial distress rose by 58% to 4,552 for Q4 in 2014, according to Begbies Tranyor’s Red Flag Alert research.

The research suggests, the UK’s food and beverage manufacturing industry witnessed a colossal 92% increase in ‘Significant Distress’, with 1,410 businesses now struggling to make ends meet, compared to 733 at the same stage last year.

The statistics show that the UK’s SME food retailers and suppliers have suffered greatly as a result of the ongoing price war between the UK’s supermarket giants, as supplier’s margins are squeezed and retailers are unable to price match.

In addition, the number of smaller food retailers in ‘Significant’ distress rose by 61% to 4,388 in Q4 2014 from 2,731 last year (representing 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 (88% of the total).

Julie Palmer, partner at Begbies Traynor, said: “In recent weeks, Asda and Sainsbury’s have promised £450 million worth of price cuts between them, Morrisons has started a search for a new CEO who can return them to growth, while Tesco has set out major plans to reassert its dominance over the UK grocery market. With the battle lines drawn, the supermarket price war is intensifying and it looks like the UK’s smallest food suppliers are bearing the brunt.

“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.

“Unless the supermarkets start treating their suppliers more fairly and find longer term solutions to their cost cutting exercise, we expect that more than 100 of these 1410 ‘Significantly’ distressed food and beverage suppliers will fall into administration before the year is up.

“Worryingly, with 3.6 million people employed in the UK food supply chain, the economic and political risks associated with the current price war are now reaching boiling point ahead of May’s election.”

Commenting on the rise in distress among food retailing SMEs, Julie Palmer added:

“Although Tesco plans to close some of its local Express shops this year, across the rest of the industry takings at smaller stores in town centres are up considerably, demonstrating consumers’ preference for convenience, shopping little and often with more frequent shops but smaller basket sizes.

“With mini-supermarkets on every corner and Aldi and Lidl opening local shops as fast as they can find the sites, competition among food retailers on the high street is still rife, making life all the more difficult for smaller, independent convenience stores who don’t have the bargaining power with suppliers or the access to premium locations afforded by their larger peers.”

This was posted in Bdaily's Members' News section by Ellen Forster .