Supermarket wars spell the end for many SMEs » SMEInsider

Supermarket wars spell the end for many SMEs

Thousands of SMEs are at risk of closure as aggressive price competition between leading supermarkets continues to drive small competitors and suppliers out of the market.

Asda, Sainsbury’s, Morrisons and Tesco are among the chains slashing prices in a bid to win over customers.

Research by insolvency specialists Begbies Traynor found that the UK’s food retailing industry saw a dramatic increase in the number of companies experiencing “significant” financial distress, with 4,552 businesses now struggling – 4,388 of which are small companies.

Suppliers to supermarkets, which are often squeezed the most by price pressures, were worst hit, with food and beverage manufacturers seeing a 92% rise in rates of “significant distress” overall. Almost nine in every ten of these are SMEs.

While the German chains Aldi and Lidl are seeing a rise in popularity without engaging in price wars, these present few opportunities to UK SMEs, as most of their produce is sourced overseas.

With the battle lines drawn, the supermarket price war is intensifying and it looks like the UK’s smallest food suppliers are bearing the brunt,” said Julie Palmer, Partner at Begbies Traynor.

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.”

She added: “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. Worryingly, with 3.6 million people employed in the UK food supply chain, the economic and political risks associated with the current price war are now reaching boiling point ahead of May’s election.”

 

 

  • An SME owner

    The article forgot to mention longer payment terms imposed by larger companies on smaller suppliers.