Less distress among grocery suppliers
BUSINESS recovery specialist Begbies Traynor has reported a “significant decline” in financial distress within the troubled UK food supply chain.
As the supermarket price war rages on – with Tesco and Sainsbury’s reporting further price cuts to stem the flow of falling sales – Manchester company Begbies Traynor says stability may finally returning the UK grocery sector.
According to Begbies Traynor’s Red Flag Alert research for the third quarter of 2015, there was a 5% decline in the number of retailers suffering financial distress – to 5,002.
The last time food retailers saw any improvement in financial distress was during Q2 2013 when there were 2,428 failing businesses in the sector, 51% fewer than the number struggling to make ends meet today.
During Q3 2015, the food and beverage manufacturers sector also experienced a falling of companies in distress to 4% to 1,553 (Q2 2015: 1,622).
Begbies Traynor partner and retail expert Julie Palmer said: “The declining fortunes of the UK food retail industry and its supply chain over the past nine quarters directly mirrors the meteoric rise in popularity of the German discounters Aldi and Lidl, whose no frills, low price offering has captured the imagination of British consumers, changing the face of the UK grocery sector for good.
“While the major supermarkets have taken drastic action to readjust their ailing business models by slashing prices in a bid to compete, the UK’s damaged food supply chain remains the biggest loser from the changing food retail environment, with levels of financial distress in this sector nearly tripling in just over two years as a result of intense margin pressure.
“Whilst the UK grocery sector is not out of the woods yet, our latest quarterly findings indicate that it is seeing the first green shoots of recovery. After a protracted period of job cuts, price readjustments and forced efficiency improvements, businesses across the sector now appear to be better equipped for the new normal of a low margin landscape.
“The big test over the coming months will be the extent to which retailers are able to pass higher wage costs on to consumers, as opposed to squeezing their still under pressure suppliers, especially in an environment where household budgets won’t see a repeat of the recent benefit of much reduced petrol prices.”
