Blog: Dean BestA warning over future of 100 UK food and drink SMEs

Dean Best | 16 January 2015

Just two weeks into 2015 and competition among UK grocers is heating up further. Asda and Sainsbury's have announced fresh price cuts and, this week, Morrisons signalled plans to "zero in" on value in the wake of Dalton Philips' departure. Will suppliers be caught in the crossfire? Corporate restructuring firm Begbies Traynor thinks so.

Last week, Asda announced plans to invest GBP300m (US$453.9m) in price cuts in the first quarter of the year. On the same day, Sainsbury's announced investment worth GBP150m.

On Tuesday (13 January), Morrisons chairman-designate Andrew Higginson, after revealing Philips would leave the UK's fourth-largest grocer, said the retailer would intensify its focus on value, cash and cost.

What does this mean for suppliers? Begbies Traynor thinks the smallest in particular will suffer.

The company said there had been a jump in food and drink manufacturers in "significant distress" in the fourth quarter of 2014. It claimed 1,410 businesses were struggling to make ends meet, compared to 733 at the same stage last year.

"A perfect storm is brewing for SME food suppliers at the bottom of the food supply chain, with many suffering a double hit from larger suppliers demanding loyalty payments as well as vanishing margins as a result of the inevitable aggressive supermarket price war," Julie Palmer, a partner at Begbies Traynor, said.

The moves on price from the UK's major supermarket chains have come in response to the rise of Aldi and Lidl in recent years. But Palmer argues the expansion of the German discounters has not helped UK suppliers.

"Adding to their misery, the UK’s food producers and suppliers have failed to see any benefit from the rise in popularity of the German discounters Aldi and Lidl, since much of their canned and packaged stock is sourced from overseas," Palmer said.

"Unless the supermarkets start treating their suppliers more fairly and find longer term solutions to their cost cutting exercise, we expect that more than 100 of these 1410 significantly-distressed food and beverage suppliers will fall into administration before the year is up."

Her comments echo those made in November by accountancy firm Moore Stephens, which claimed suppliers had become "cannon fodder" in the UK supermarket price war.

Since the start of the year, Tesco has also announced plans to review its ranges and trim the lines it sells in store, which will have an obvious impact of some smaller suppliers.

And, soon enough, new CEO Dave Lewis will likely announce the retailer's own moves on price.

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