Food suppliers and farmers are increasingly being squeezed by the supermarket price war in the UK, according to a new report.
The study from Begbies Traynor, which advises firms on insolvency and restructuring, found the number of UK food and beverage manufacturers in “significant” distress rose to 1,622 in the second quarter of 2015.
This was a 54% increase on the same period last year in the number of companies struggling to make ends meet – the highest increase of all sectors monitored by Begbies’ Red Flag research.
Firms are being hit by the big supermarkets’ price cuts – as they battle to fend off the threat from discounters Aldi and Lidl – as well as the big grocers’ late payments.
The report found that small and medium companies were bearing the brunt of the squeeze on suppliers – with businesses of this size representing 89% of those who were struggling.
Smaller grocery outlets were also experiencing a squeeze too, with a rise in distressed companies in that sector as well.
But the report said it was the supply chain keeping retailers stocked that was by far the biggest loser.
Julie Palmer, partner and retail expert at Begbies Traynor, said the landscape was “set become even bleaker for the UK’s small food suppliers” with price cuts “not just a short-term pain but something that’s here to stay”.
“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, taking more than a month longer than agreed terms to settle debts with suppliers.
“Some are even looking into launching their own food manufacturing facilities to give them even tighter control over costs and the ability to offer still more aggressive pricing – signalling yet another nightmare scenario on the horizon for the UK food supply chain.”
Ms Palmer said it was welcome that the Groceries Code Adjudicator now had the power to fine UK supermarkets up to 1% of their UK turnover for unfair practices.
But she added that it was “unlikely to have a major positive impact for the supply chain”, with many suppliers reluctant to raise issues for fear of retribution from their major sources of income.