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Supermarket price cuts set to affect food suppliers

Article By: ,  Financial Analyst
January 16, 2015 1:26 PM

Supermarkets have endured somewhat of a torrid time of late with many performing below par over the traditionally busy Christmas period.

The likes of Tesco, Sainsbury's and Morrisons all reported drops in sales in the weeks leading up to and after the festivities. They have seen increasing competition arise from discounters such as Aldi and Lidl which have both been gaining a larger market share over the past 12 months. Now a new report has highlighted the knock-on effect this poor performance is having.

Insolvency specialists Begbies Traynor noted that over 100 food suppliers could be forced out of business as supermarket slash prices to help retain customers. Supermarkets are constantly in price battles with each other but the research noted that this is causing "significant distress" to a large number of suppliers.

The organisation said that the amount of suppliers hitting financial difficulties almost doubled in the last three months of 2014. This has been compounded with the food retail industry as a whole showing sign of financial issues.

Begbies Traynor noted that the amount of food companies experiencing "significant" financial distress had hit 4,552 in the fourth quarter of 2014. This was a 58 per cent increase on the same time a year earlier when it was down at 2,878. Analysts are concerned that the constant slashing of supermarket prices could result in many suppliers going out of business.

Julie Palmer, partner at Begbies Traynor, said: "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.

"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."

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