Midlands food suppliers on the brink as supermarket discount battle rages – Red Flag Alert
AS the UK’s largest supermarkets fight to win back customers from the German discounters, they are increasingly squeezing their food suppliers, warns business recovery specialist Begbies Traynor.
According to the firm’s Red Flag Alert research for Q2 2015, which monitors the financial health of UK companies, the UK’s food retailers continue to experience rising ‘significant’ financial distress.
It has increased by 38% to 5,258 struggling businesses over the past year (Q2 2014: 3,804), 97% of which (5,092) are SMEs.
In Birmingham, ‘significant’ financial distress amongst food retailers rose by 11% (114 to 126) between Q1 2015 and Q2 2015.
During Q2 2015, the UK food and beverage manufacturers, which include 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 research, rising 54%, 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, representing 89% of all struggling companies within this sector.
In Birmingham financial problems amongst food and beverage manufacturers remained broadly flat during the period, falling slightly from 13 to 11.
Across the wider Midlands region, ‘significant’ financial distress levels across all sectors rose by 13%, up from 28,497 to 32,259 during April, May and June this year.
John Kelly, regional managing partner for Begbies Traynor in the Midlands, said: “During the first six months of 2015 we’ve witnessed a real shift in approach amongst the big four supermarkets in terms of their response to the rising popularity of the German discount food retailers.
“Only this week we learned that the Competition and Markets Authority is looking into complaints by Which? that supermarkets are using ever more complex marketing tactics to present customers with a bargain. This is clearly a response to the bargain offer presented by discount stores.
“However, this approach is really squeezing suppliers, many of which are SMEs, and small retailers who simply cannot compete on price. Faced with increasing overheads, late payments and now the threat of an interest rate rise towards the end of the year, many of these companies will find it impossible to carry on.”
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.”
