Supermarket price war is hurting SMEs » SMEInsider

Supermarket price war is hurting SMEs

The UK’s biggest supermarkets are destroying local food suppliers by delaying late payments and significantly lowering prices, in an attempt to compete with discount food retailers such as Aldi and Lidl.

A report published by business recovery specialist Begbies Traynor highlights the extent to which local food suppliers are suffering financially in Q2 of 2015.

The UK’s food retailers continue to experience rising ‘‘significant’’ financial distress, increasing 38 per cent to 5,258 struggling businesses over the past year (Q2 2014: 3,804), 97 per cent of which (5092) are small businesses.

The UK food and beverage manufacturing industry is suffering as a whole. The Red Flag Alert research shows that 2015 is the highest year on record for food businesses reporting increased ‘distressed’ levels.

Over 1600 food companies are struggling to make ends meet, up from 1,052 at the same stage last year. Within this sector, 1,436 SME food suppliers are bearing the brunt of the supermarkets’ drastic turnaround strategies, as they attempt to compete with budget food stores.

Julian Pitts, Begbies Traynor regional managing partner, explains why small food businesses are feeling the pinch.

‘‘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 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.’’

‘‘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.’’