While most of the UK’s largest supermarkets are embarking on turnaround strategies in an attempt to claw their way back to financial health, their means of slashing prices and delaying payments is grinding many food suppliers and smaller high street grocers to the ground, warns business recovery specialists Begbies Traynor.
According to Begbies Traynor's Red Flag Alert research for Q1 2015, which monitors the financial health of UK companies, the UK's food retailing industry continues to experience rising ‘Significant’ financial distress, increasing 66% to 4,696 struggling businesses over the past year (Q1 2014: 2,823).
However, the major casualty remains the UK’s food and beverage manufacturing industry. Companies in this sector, many of which supply the major UK headquartered supermarkets, continue to experience ‘Significant’ distress with 1,414 businesses now struggling to make ends meet, compared to 728 at the same stage last year; a devastating 94% increase.
Begbies Traynor warns that it is the SME food suppliers which are really being flattened by this new savage landscape in the UK retail food industry, as ‘Significant’ distress among this group of businesses has increased by 120% year on year, from 574 SMEs to 1,267.
Julie Palmer, Partner and retail expert at Begbies Traynor, said:
“The four main UK supermarkets continue to cut prices as a core component of their turnaround strategies and with Tesco expected to announce positive progress at its full year results on Wednesday, this price slashing practise seems to be working for them. However, these mass price reductions have severe consequences for less established food retailers and suppliers, particularly SME’s, who now seem to be locked in a David and Goliath-style battle; although this time it appears David can’t win.
“With £1 deals for fresh produce goods such as bread and milk remaining a firm feature at the major supermarkets, it’s no wonder that suppliers lower down the food chain are struggling to achieve a fair price for their produce. Meanwhile, wastage on farms continues to be a problem as suppliers are increasingly struck by last-minute order cancellations and overzealous cosmetic specifications set by the large supermarkets when it comes to the look of food that it will accept from farmers.
“Looking to the future, the picture only gets bleaker for small UK food suppliers, as German discounters, Aldi and Lidl, are predicted to capture 20% of UK market share. As the majority of Aldi and Lidl’s packaged stock comes from overseas, struggling UK suppliers could find themselves squeezed even further, if not stamped out altogether.
“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.”