16th Jan 2015 08:58
LONDON (Alliance News) - The escalating price war among big UK supermarkets and discounters has put many smaller food retailers and suppliers at risk of going under, according to a report from insolvency specialist Begbies Traynor.
The Red Flag Alert report from Begbies for the fourth quarter of 2014 found the UK food retailing industry experienced one of the sharpest increases on record in instances of 'significant' financial distress in all sectors monitored. The number of businesses considered to be struggling significantly increased to 4,552 in the quarter, up 58% from the 2,878 categorised this way in the fourth quarter of 2013.
The worst performing sector is the food and drink manufacturing industry. Companies in the sector, many of which supply the UK's biggest supermarkets, saw a 92% rise in the number of businesses considered to be in 'Significant Distress', with 1,410 businesses in the sector now struggling to stay afloat, Begbies said.
SME food retailers and suppliers have been the hardest-hit casualties of the ongoing price war among supermarkets in the UK, as the likes of Tesco PLC, J Sainsbury PLC, Asda and WM Morrison Supermarkets PLC attempt to cope with the competition from discount retailers Aldi and Lidl. The supermarkets have been cutting prices and, as a result, have been squeezing suppliers' margins and elongating payment terms.
"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," said Julie Palmer, a partner at Begbies Traynor.
"Even the government's appointment of a grocery code adjudicator last year seems to be having little impact, with industry insiders reporting that the new watchdog lacks real powers and is still failing to protect producers from being squeezed by the supermarkets," Palmer added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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