Supermarket price wars 'pushing suppliers to the brink'

Will Green is news editor of Supply Management
19 January 2015

More than 100 firms could go bust by the end of the year because supermarket price wars are “pushing many food suppliers to the brink”.

According to corporate recovery firm Begbies Traynor, the number of companies in “significant distress” in the food and drink manufacturing sector increased 92 per cent year-on-year to 1,410 in the last quarter of 2014.

For SMEs the picture was even worse, according to Begbies Traynor’s research, with the number of companies in significant distress rising 113 per cent to 1,240 over the same period.

Begbies Traynor said the figures showed that UK food suppliers “have been the worst casualties so far of the enduring price war between the UK’s supermarket giants, who have been slashing prices while squeezing suppliers’ margins and elongating payment terms”.

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.

“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 Groceries Code Adjudicator seems to be having little impact, with industry insiders reporting 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 more than 100 of these 1,410 significantly distressed food and beverage suppliers will fall into administration before the year is up.”

Last November accountancy firm Moore Stephens said supermarkets were using suppliers as “cannon fodder” in their price wars.

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