Warning on food and drink suppliers

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Published: Friday 16th January 2015 by The News Editor

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More than 100 food and drink suppliers face going bust by the end of the year amid a squeeze caused by supermarket price wars, a report said today.

It showed the number of firms in the sector in “significant distress” rose 92% to 1,410 in the final quarter of 2014.

The Red Flag Alert from corporate recovery specialists Begbies Traynor found suppliers had become the worst-hit casualties of the “brutal” competition between the UK’s big supermarket chains.

It said the retailers had been squeezing the suppliers’ profit margins and stretching payment terms in a bid to offer consumers the lowest prices.

Begbies Traynor partner Julie Palmer said: “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 1,410 ‘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 reaching boiling point ahead of May’s election.”

The findings come amid a bitter war of attrition between major players Tesco, Sainsbury’s, Asda and Morrisons as their market share is gnawed away by German-owned discounters Aldi and Lidl.

Official data shows food prices have been falling for six months in a row as the supermarkets sink hundreds of millions of pounds of investment into staying competitive.

Meanwhile, Morrisons has ditched its boss while Tesco under new chief executive Dave Lewis has announced a round of store closures and major restructuring as it seeks to shore up its dominant position.

Ms Palmer said: “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 [small and medium enterprise] 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.”

The Red Flag Alert research, which monitors the financial health of UK companies, also found that the number of food retailers in “significant” distress rose 58% to 4,552, the vast majority smaller firms.

It reflected the difficulties facing small independent convenience stores as supermarkets expand small store networks and Aldi and Lidl expand rapidly.

Published: Friday 16th January 2015 by The News Editor

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