Written by: Keith Tully
Published: 20th July 2015
Ongoing battles for customers and market share between the UK’s leading supermarkets is piling on financial pressures within the associated food and beverage supply chain.
According to figures compiled by the business recovery experts of Begbies Traynor, the number of British food firms facing “significant” financial distress has risen by over 50 per cent during the past 12 months.
In all, there were found to be 1,622 food and beverage manufacturers in serious financial trouble around the UK during the second quarter of the year. This figure was up 54 per cent on the same period of 2014, according to Begbies Traynor’s Red Flag Alert research.
For the most part, the UK’s struggling food and beverage suppliers are small to medium in scale, with 89 per cent of all those in trouble falling into that category.
According to most assessments, the key reason why more and more supply chain companies are under such serious financial pressure is because the operators that dominate the UK’s supermarket sector are changing their practices.
Slashing prices to consumers has apparently led retail giants to delay their payments on a more regular basis and to strike increasingly tough bargains with suppliers who often have few options but to agree to whatever terms are offered.
“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,” said Julie Palmer, partner and retail expert at Begbies Traynor.
“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,” she added.
Among the industry dynamics that are ultimately causing problems for food and beverage suppliers are those that have seen discount retailers such as Aldi and Lidl taking market share away from bigger name supermarket chains including Tesco and Sainsbury’s.
This trend has seen more established supermarkets increasingly look to compete on prices not just with one another but with discounters as well.