Small suppliers ‘main casualties’ of price war

By Alice Foster contact

- Last updated on GMT

Small suppliers have been hardest hit by price war, according to EMW
Small suppliers have been hardest hit by price war, according to EMW

Related tags: Marketing, Retailing

The supermarket price war has hit small food manufacturers hardest, squeezing profit margins by more than a third, according to law firm EMW.

Small to medium-sized enterprises (SMEs) were said to lack the negotiating power of larger rivals and firms with a turnover below £25M saw profit margins drop from 3.5% to 2.1% last year.

But the biggest manufacturers, with over £1bn turnover, saw profit margins increase from 5.2% to 5.4% in the same period, according to data collected by EMW. 

EMW consultant Sebastian Calnan said: “Smaller suppliers are one of the main casualties of the supermarket price war. 

‘Smaller number of contracts’ 

“These SMEs tend to have a smaller number of contracts so find themselves in an impossible position when they come to the negotiating table.” 

Calnan said larger suppliers have a stronger market position, there is greater demand for their products and they feel more confident about “pushing back”​ against retailers. 

View from EMW law firm

“Smaller suppliers are one of the main casualties of the supermarket price war. 

  • Sebastian Calnan, consultant, EMW 

“SMEs are often too afraid of losing what may be their biggest contract so there is often significant pressure from the supermarkets on smaller suppliers to accept contracts with unfavourable terms,” ​he said. 

EMW has carried out an analysis of company reports from the latest available year, including Companies House data from more than 13,000 food manufacturers. 

‘Commercial income’ 

Many supermarkets profit from “commercial income” ​– the revenue received from suppliers to stock certain products, according to EMW. Often the supplier pays rebates to the retailer based on the quantity of a product sold. 

Calnan said: “Many suppliers do not feel they are in a position to resist the supermarkets’ demands for rebates. 

“Currently, the relationship between supermarkets and their smaller suppliers is not as equitable as it should be.

“In many cases, there is the perverse situation where the more popular a product is with customers, the more money the supplier has to return to the supermarket.” 

Meanwhile, earlier this year business recovery specialist Begbies Traynor warned that the supermarket price war continued to “devastate”​ small­-scale food and drink suppliers​. 

Begbies Traynor partner and retail expert Julie Palmer said price slashing practices seemed to be working for the big four supermarkets. 

“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,” ​she said. 

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