The number of UK food suppliers in "significant" financial distress has jumped by 54% over the last 12 months, new research from Begbies Traynor revealed today (20 July).
According to the advisory group, as UK supermarkets focus on price cuts to counter the discount grocers, retailers are "slashing prices and delaying payments to suppliers" – meaning many of the UK's smaller food suppliers, independent grocers and farmers have been left reeling.
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Begbies Traynor's Red Flag Alert research found 1,622 companies surveyed are "struggling to make ends meet" – up from 1,052 in the same period of last year. Of these, 1,436 are food suppliers, 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," Julie Palmer, partner and retail expert at Begbies Traynor, said.
"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."
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Palmer said the Groceries Code Adjudicator, which now has the power to fine supermarkets up to 1% of UK turnover if they are found to breach the Groceries Code, is" unlikely to have a major positive impact" on the supply chain. "A recent sector study found that almost one in five suppliers to the UK’s 10 biggest retailers are reluctant to raise any issues with the industry regulator for fear of retribution from their largest source of income."
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By GlobalDataIn research published last month, the Adjudicator found 47% of food makers would be willing to raise an issue with the body. However, the agency also noted "fear of retribution" is the primary barrier preventing suppliers from reporting issues.
