Food firm failures rose to reach record level last year

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Related tags: Morrisons, Sainsbury's

The number of corporate failures in food manufacturing jumped 38% in 2005 as record numbers of businesses were forced to call in liquidators,...

The number of corporate failures in food manufacturing jumped 38% in 2005 as record numbers of businesses were forced to call in liquidators, receivers and administrators, according to a survey published by business information provider Experian.

Of the 34 industries in the UK surveyed by Experian, 25 recorded an increase in corporate failures in 2005, with the number of failing food manufacturing outfits up from 61 in 2004 to 84 in 2005. Food retailing failures were also sharply up from 93 in 2004 to 117 in 2005, claimed the survey.

Business advice company Grant Thornton said the figures came as no surprise given the large number of small companies in the food sector that were marginally profitable, plus the high level of fragmentation in many categories.

Trading conditions were likely to become even more difficult this year with a resurgent Sainsbury and Morrison, new owners at Somerfield and a price war between Tesco and Asda already in full swing, added the Goldman Sachs analyst Mark McCullough. He predicted that UK food retailers would invest £1.2bn on price cutting in 2006, compared with £1.1bn in 2005.

He said: "We believe that 2006 will see the largest amount of price deflation for years." The only company likely to emerge from the battle unscathed was Tesco, which had a more efficient supply chain and lower cost structure than rivals, he claimed.