Supermarket price war could force suppliers out of business – Red Flag Alert

THE number of smaller food suppliers experiencing financial distress has more than doubled this year, according to the latest Red Flag Alert research into corporate distress levels from business recovery specialist Begbies Traynor.
 
While most of the UK’s largest supermarkets reported stronger than expected food sales over the festive period, their on-going price war is pushing many food suppliers and smaller high street grocers to the brink, Begbies says.

Ironically the number of retailers in Birmingham experiencing financial difficulty fell in the final three months of 2014.

Between October and December there was a 5% drop (244 to 233) in city businesses categorised as general retailers suffering from significant financial distress – that is businesses subject to minor CCJs up to £5,000 and dwindling credit scores.

However, for many businesses Christmas came too late, Begbies says.

Year on year in Birmingham the number of shops in significant financial distress actually rose by 62% (144 to 244), as the on-going price war between the major supermarkets and German discounters continued to take its toll on smaller businesses.

Looking specifically at food and drug retailers in Birmingham, there were sustained quarterly and annual increases in significant financial distress.

Between Q3 and Q4 2014 the number of businesses experiencing problems rose by 34% (80 to 107) and between Q4 2013 and Q4 2014 there was an 88% rise (57 to 107).

But perhaps the major concern highlighted by its research is that the battle for retail dominance is causing pain for suppliers. In Birmingham food and beverage manufacturers saw a 57% rise (7 to 11) in significant financial distress between Q3 2014 and Q4 2014, whilst annually there was an 83% increase (6 to 11).

The local trend reflected the national picture, where there was a 4% final quarter drop (18,471 to 17,781) in the number of businesses categorised as general retailers experiencing significant financial distress but nnually this sector witnessed an increase of 36% (13,051 to 17,781).

Across the Midlands region, there was a 31% drop (16 to 11) in the number of general retail businesses in the more serious category of critical financial distress between Q3 2014 and Q4 2014. In food and drug retailing distress levels remained broadly flat.

John Kelly, regional managing partner at Begbies Traynor’s Birmingham office, said retailers faced an incredible challenge due to generational shifts in consumer habits.

He said: “Whilst the run-up to Christmas 2014 brought some relief to hard-pressed retailers, the fact is the sector is experiencing unprecedented changes in the way people make their purchases.

“Online retailers, which we all know are experiencing phenomenal growth, are using their reduced overheads to keep prices low and that is determining consumer behaviour and hitting those with traditional retail space.

“As for food retailers, the German discounters have massively disrupted the UK market, bringing us cheap food like we’ve never seen before, and creating a classless shopping experience as people of all backgrounds are buying their groceries from them.

“There’s a huge amount of uncertainty around the long-term effects that the changes in consumer habits will have on the food retail sector. Despite the economic recovery, people have become wedded to buying their weekly groceries from Aldi and Lidl. And one thing’s for sure: it’s going to take a lot to persuade many British consumers to pay more for their food.”

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