Food suppliers ‘devastated’ by supermarket price war

By Michael Stones contact

- Last updated on GMT

David won round one but will he triumph this time? Unlikely, was Begbies Traynor's verdict
David won round one but will he triumph this time? Unlikely, was Begbies Traynor's verdict

Related tags: Supermarket, Wal-mart, Asda

Supermarket price war continues to “devastate” small-scale food and drink suppliers, as they fight a David and Goliath style battle with the big retailers, warns business recovery specialist Begbies Traynor.

The number of small and medium-sized enterprises (SME) supplying food, which are experiencing financial distress rocketed by 120% in 12 months, warns its latest Red flag alert report for the first quarter of this year.

As the UK’s big four supermarkets – Tesco, Asda, Sainsbury and Morrisons – continue to implement turnaround strategies in a bid to rebuff the gains made by hard discounters Aldi and Lidl, their tactics of slashing prices and delaying payments were “grinding many food suppliers and smaller high street grocers to the ground”​, said Begbies Traynor.

The major casualty

The major casualty remained the UK’s food and beverage manufacturing industry. “Companies in this sector, many of which supply the major UK headquartered supermarkets, continue to experience ‘significant’ distress with 1,414 businesses now struggling to make ends meet, compared with 728 at the same stage last year; a devastating 94% increase,”​ according to the report.

SME food suppliers were “really being flattened”​ by the new savage landscape in the UK retail food industry, it continued. ‘Significant’ distress among this group of businesses rose by 120% year-on-year, from 574 SMEs to 1,267.  

Begbies Traynor partner and retail expert Julie Palmer said: “The four main UK supermarkets continue to cut prices as a core component of their turnaround strategies and with Tesco expected to announce positive progress at its full year results on Wednesday​ [April 22], this price slashing practice seems to be working for them.

'David can't win'

“However, these mass price reductions have severe consequences for less established food retailers and suppliers, particularly SMEs, who now seem to be locked in a David and Goliath-style battle; although this time it appears David can’t win.”

“However, these mass price reductions have severe consequences for less established food retailers and suppliers, particularly SMEs, who now seem to be locked in a David and Goliath-style battle; although this time it appears David can’t win.”

‘David and Goliath-style battle’

It was unsurprising suppliers down the food chain were struggling to achieve a fair price for their produce, with the supermarkets promoting £1 deals for fresh produce goods such as bread and milk, she added.

“Looking to the future, the picture only gets bleaker for small UK food suppliers, as German discounters, Aldi and Lidl, are predicted to capture 20% of UK market share. As the majority of Aldi and Lidl’s packaged stock comes from overseas, struggling UK suppliers could find themselves squeezed even further, if not stamped out altogether​.”

Palmer said the introduction of the prompt payment code and the powers given to the Groceries Code Adjudicator to fine supermarkets in breach of the Grocery Supply Code of Practice will have only a minimal impact on suppliers’ plight, said Palmer.

“These latest red flag figures indicate that they may simply be too little too late for many in the SME supply chain.”

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