Supermarket suppliers ‘are cannon fodder’

By Michael Stones contact

- Last updated on GMT

Competition from discounters, such as Aldi, is prompting the multiple retailers to put the squeeze on their suppliers
Competition from discounters, such as Aldi, is prompting the multiple retailers to put the squeeze on their suppliers

Related tags: Supermarket, British retail consortium

Insolvencies among food manufacturers have risen sharply over the past year, as competition between supermarkets and discounters has resulted in them being treated “as cannon fodder”, claims accountancy firm Moore Stephens.

It recorded a 28% rise in the number of food producers going bust in the 12 months to September 2014, reaching a total of 146 compared with 114 last year. Moore Stephens blamed the failures on the supermarket price war, which had led supermarkets to squeeze suppliers in order to cut prices and prop up profits.

The rate of food businesses going bust contrasted starkly with the 8% fall in company liquidations across the economy as a whole during the same period.

'Cannon fodder'

Moore Stephens partner Duncan Swift, who leads its Food Advisory Group, said: “The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder.

“Supermarkets have engaged in questionable buying practices for years, but it’s getting worse and clearly wreaking havoc on the UK food production sector. The fact that food producer insolvencies are rising so rapidly, while business insolvencies are falling overall, shows just how much pressure the sector is under.”

In the price war, supermarkets were committed to delivering profit margins that are far higher than the discount chains. “To try to make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing,”​ said Swift.

But the British Retail Consortium (BRC) disputed this assessment. “It is far too simplistic to blame retailers for this. First, there may be a number of reasons for failure and we don’t know if they supply retailers, and even if they do they are likely to have other customers,”​ said a BRC spokesman.

 'Ensure fair dealing'

“Secondly, retailers operate in a highly regulated supply chain with a strict code of practice governing contracts and an adjudicator appointed by Parliament specifically to ensure fair dealing.”

Swift insisted fear of losing key contracts deterred suppliers from complaining about supermarkets’ sharp practices.

“The fear of losing business from supermarkets means that food producers rarely – if ever – complain about clear breaches of agreed industry standards. That means there is no check on the highly aggressive buying practices of the supermarkets; which causes great uncertainty that a price agreed by a buyer will actually be paid and more food producer insolvencies is the result.”

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