Retail suppliers under threat from ‘brutal’ supermarket price war

Shopping trolley of healthy food. Picture: PA

Shopping trolley of healthy food. Picture: PA - Credit: PA

Small food producers are at risk of being squeezed towards extinction by a brutal supermarket price war, a report has found.

More than 100 food and drink suppliers face closure by the end of the year, according to corporate recovery specialists Begbies Traynor, which has warned against a perfect storm of rising 'loyalty payments' and vanishing margins.

Its research found that the number of food manufacturers in 'significant distress' rose by 92pc to 1,410 in the final quarter of 2014.

The pressure on the sector has also been seen locally, with separate regional figures showing that 102 food and drink suppliers across East Anglia were struggling to survive, with 60 already succumbing to insolvency.

It comes amid the bitter war of attrition being waged between major players Tesco, Sainsbury's, Asda and Morrisons as their market share is gnawed away by German-owned discounters Aldi and Lidl.

Chris Williams, partner at Norwich-based insolvency firm McTear, Williams and Wood, which conducted the local research, said there was a 28pc increase in food producers going insolvent across the UK.

He said the fear of losing business from supermarkets meant small food producers had little option than to take the price hit.

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'These figures are likely to be the tip of the iceberg as many small producers are sole traders and won't necessarily show up in statistics,' he added. 'Food growing and production is a large part of the East Anglian economy, and producers as well as local retailers may find themselves under pressure.'

Julie Palmer, partner at Begbies Traynor, which compiled The Red Flag Alert report, said: 'Unless 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 1,410 'significantly' distressed food and beverage suppliers will fall into administration before the year is up.'

Matt Legon, director at Norwich-based EDP Future 50 company Gnaw Chocolate, said he had decided to stick to the premium market and co-operative societies rather than supply to the larger supermarkets.

He added: 'Supplying to a supermarket can mean a business like ours loses its premium-market customers who don't want to stock a brand already in supermarkets.

'Supermarkets can then demand lower prices, and because you have nowhere to turn, you are then likely to be finished as a business yourself.'

Jeanette Thurtle, development manager at East Anglia branch of the Federation of Small Businesses, said that suppliers with no long-term supermarket contracts would be most at risk.

The Red Flag Alert research, which monitors the financial health of UK companies, also found that the number of food retailers in 'significant' distress rose 58pc to 4,552, the vast majority smaller firms.

East Anglia's largest independent retailer, East of England Co-operative, said it tried to protect its 140 local suppliers through its Sourced Locally scheme, which aims to engage in fair and respectful deals.

The National Union of Farmers launched a new scheme last year allowing farmers and growers to make anonymous reports of retailers suspected of breaching the Groceries Supply Code of Practice through an independent adjudicator.

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