Supermarket price cuts heap pressure on beleaguered suppliers

Paul Snell is managing editor at Supply Management
20 July 2015

The “savage landscape” of the UK food retail sector is pushing an increasing number of suppliers into financial distress, according to new figures.

Some 1,622 food and beverage manufacturers are now in what business recovery firm Begbies Traynor classifies as “significant distress”, according to the firm’s Red Flag Alert for the second quarter of 2015. This is a rise of 54 per cent compared to the same period last year, and the highest increase across all sectors.

Julie Palmer, partner at Begbies Traynor, said things could get even bleaker as supermarkets continue to slash prices.

“The supermarkets have managed to successfully re-base their own models by reducing product ranges, moving away from bulk-buy offers and squeezing supplier margins still further, while failing to clean up their act on late payments, taking more than a month longer than agreed terms to settle debts with suppliers,” she said.

“Some are even looking into launching their own food manufacturing facilities to give them even tighter control over costs and the ability to offer still more aggressive pricing – signalling yet another nightmare scenario on the horizon for the UK food supply chain.”

Palmer added: “While it’s a welcome development that the groceries code adjudicator now has the power to fine supermarkets up to 1 per cent of their UK turnover if found to be in breach of the code, this is unfortunately unlikely to have a major positive impact for the supply chain, as a recent sector study found that almost one in five suppliers to the UK’s 10 biggest retailers are reluctant to raise any issues with the industry regulator for fear of retribution from their largest source of income.”

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