Written by: Keith Tully
Published: 12th April 2016
The rate at which food producing companies in the UK are becoming insolvent has tripled over the course of the past five years.
That’s according to the latest figures on insolvencies and financial stress within the industry which suggest that small and medium-sized businesses are being heavily impacted by the pricing policies of the country’s supermarket giants.
A report from the accountancy firm Moore Stephens has revealed that where there were 48 food companies entering insolvency nationwide in 2010, the figure for the past 12 months has jumped up to 162.
Based on comparisons with the previous 12 months, the situation within the industry looks to be deteriorating rapidly, with an 11 per cent rise in insolvencies among food producers reported year-on-year in 2016.
“The extreme buying and retail pricing strategies of big retailers mean smaller food producers are struggling to stay afloat,” commented Duncan Swift from Moore Stephens in a statement.
“Food supplier insolvencies are still rising as small producers continue to be the major casualties in the supermarket price war.”
Recent years have seen a growth in the number of cut-price supermarket outlets being opened up around the UK, with Lidl and Aldi stores now much more commonplace nationwide.
Both these retailers have taken market share from more established grocery sector giants including Tesco, Sainsbury’s and Asda, with these chains in turn putting the squeeze on their food and drink sector suppliers in support of decisions taken in a context of heightened competition for customers on the basis of product price.
“With no end to the price war in sight, food manufacturers are finding themselves less and less able to subsidise the aggressive buying tactics of big retailers,” explains Swift.
“It’s not just the pressure on the headline supply price itself, there are concerns about when that price will be paid as 120-day credit terms are commonplace,” he added.
In many cases, small-scale food producers now find themselves in an extremely weak negotiating position when it comes to working with the country’s largest grocery retailers, with the eventual result being a diminishing of their profit-making capacities and their ability to stay in business and avoid insolvency.