The number of UK food suppliers experiencing ‘significant’ financial distress increased by 54% in the past 12 months, a report by Begbies Traynor has found.
As the UK’s biggest supermarkets try to win back customers from discounters such as Aldi and Lidl, their means of slashing prices and delaying payments to their suppliers means that the food retail industry has never been tougher for smaller food suppliers, it says.
Research conducted by Begbies Traynor for the second quarter (Q2) of 2015 found that over 5,000 businesses are now struggling in the UK.
Some 97% of these companies were small or medium-sized enterprises (SMEs), it says.
However, according to Begbies Traynor, during Q2 2015 the UK Food and Beverage Manufacturers witnessed the highest year-on-year increase in ‘significant’ distress of all sectors monitored by the research, rising 54%.
This brings the number of companies now struggling to make ends meat to 1,622, up from 1,052 at the same stage last year.
Within this sector, 1,436 SME food suppliers are bearing the brunt of the supermarkets’ drastic turnaround strategies and the new savage landscape in the UK retail food industry, representing 89% of all struggling companies within this sector, it says.
Julie Palmer,\ Partner and Retail Expert at Begbies Traynor, said with Tesco recently hailing the success of its Q1 performance after four rounds of price cuts since January and even Waitrose now joining the sector’s discounting foray, clearly the novelty of a bargain continues to resonate with consumers.
“Unfortunately the retail environment is set to become even bleaker for the UK’s small food suppliers who are facing the harsh reality that price slashing is not just a short term pain but something that’s here to stay.
“The supermarkets have managed to successfully rebase 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.
“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,” she said.
Palmer said that while it’s a welcome development that the Groceries Code Adjudicator now has the power to fine supermarkets up to 1% of their UK turnover if found to be in breach of the Code.
She said that 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 UKs 10 biggest retailers are reluctant to raise any issues with the industry regulator for fear of retribution from their largest source of income.
