Retailers and suppliers 'locked in David and Goliath-style battle' with SMEs facing 'severe...

23 April 2015

Supermarket price wars are driving many food suppliers into the ground, with the number in distress almost doubling, according to research.

Business recovery specialists Begbies Traynor has warned that supermarkets’ continued strategy of slashing prices and delaying payments, is causing significant distress to suppliers and smaller high street grocers.

According to its Red Flag Alert research for the first quarter of 2015, which monitors the financial health of UK companies, while the number of British food retailers experiencing significant financial distress has increased 66 per cent compared to the same period last year, the figure is 94 per cent for food and beverage manufacturers.

For SME food suppliers the figures is even higher – 120 per cent, with 1,267 experiencing significant distress in the first quarter of this year, compared to 574 during the same period in 2014.

Julie Palmer, partner and retail expert at Begbies Traynor, said that the main UK supermarkets’ turnaround strategies, which included cutting prices, seemed to be working for them.

“However, these mass price reductions have severe consequences for less established food retailers and suppliers, particularly SMEs, who now seem to be locked in a David and Goliath-style battle, although this time it appears David can’t win,” said Palmer.

Wastage on farms also continued to be a problem as suppliers are increasingly struck by last-minute order cancellations and “overzealous cosmetic specifications” on the look of products, according to Palmer.

Small UK food suppliers were likely to be squeezed even further, Palmer said, as German discounters Aldi and Lidl, whose stock mostly comes from overseas, are predicted to capture 20 per cent of UK market share. Recent regulations to support smaller businesses and suppliers have yet to make any significant difference.

“The introduction of the Prompt Payment Code and the powers given to the groceries code adjudicator to fine supermarkets in breach of the Grocery Supply Code of Practice have only had a minimal impact, and these latest Red Flag figures indicate that they may simply be too little too late for many in the SME supply chain,” said Palmer.

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