Retailers slashing prices and delaying payments to suppliers means that the food retail industry has never been tougher for the UK’s smallest food suppliers, independent grocers and farmers, according to specialists Begbies Traynor.
According to Begbies Traynor's Red Flag Alert research, which monitors the financial health of UK companies, in Q2 2015, the UK's food retailers continued to experience rising 'significant' financial distress, increasing 38 per cent to 5,258 struggling businesses over the past year (Q2 2014: 3,804), 97 per cent (5,092) of which are SMEs.
However, says Begbies Traynor, in reality, the UK’s food supply chain, which keeps these stores stocked, is by far the biggest loser.
During Q2 2015, UK food and beverage manufacturers, including many of the food suppliers and farmers that supply the major UK headquartered supermarkets, witnessed the highest year-on-year increase in significant distress of all sectors monitored by the Red Flag Alert research, rising 54 per cent, with 1,622 companies now struggling to make ends meet, 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 per cent of all struggling companies within this sector.
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."
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