The ongoing supermarket price war may be good news for consumers, but it could lead to suppliers across the food chain going bust according to a recent report.
According to Begbies Traynor’s Red Flag Alert research for Q4 2014, which monitors the financial health of UK companies, the number of smaller food suppliers experiencing financial distress more than doubled last year. The company said the UK’s food retailing industry experienced one of the sharpest increases in ‘Significant’ financial distress of all sectors monitored, rising 58% to 4,552 struggling businesses compared to the same quarter the year before (Q4 2013: 2,878).
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. 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.
““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 1410 ‘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 now reaching boiling point ahead of May’s election.”