Supermarket price war takes toll on UK food suppliers


The industry has never been tougher for Britain’s smallest suppliers, said the study from insolvency specialists Begbies Traynor, after its research found 1,622 growers and suppliers in “significant” financial distress in the three months to the end of June – up from 1,052 at the same time last year.

According to The Guardian, the researchers said there was a “new savage landscape” in food retailing and suppliers were bearing the brunt of the big supermarkets’ drastic turnaround plans, aimed at clawing back market share from discount retailers such as Aldi and Lidl.

Almost 90 per cent of the struggling food companies were small and medium-sized businesses, the researchers found, and it is feared some could fall into administration. Significant problems are defined as where a business is facing legal claims for unpaid bills or has suffered a “sustained or marked deterioration” in its financial health – for example in its levels of working capital.

Begbies Traynor claimed the outlook was even bleaker and small food suppliers had to face the harsh reality that “price slashing is not just a short-term pain but something that’s here to stay”.

All of the big four supermarkets – Tesco, Asda, Sainsbury’s and Morrisons – have struggled with falling sales as shoppers’ habits change, with many people ditching the traditional big weekly shop in favour of several visits to smaller local shops and discounters. Morrisons has clawed back small rises in sales in the past two months but it comes against a background of consistent falls since the beginning of last year.

In April, Tesco reported a record £6.4bn loss, though the retailer claimed it was on the road to recovery. The following month, Asda revealed its worst sales figures since the 1990s, while in June, Sainsbury’s revealed its sixth quarter of falling sales. Even upmarket Waitrose has been feeling the pain; it recently started giving loyalty card shoppers money off their favourite items, and indicated it would split the bill for this scheme with suppliers that had signed up.

The price wars have kept grocery prices falling constantly since last autumn, bringing prices down by 1.7 per cent in a year, retail researchers Kantar Worldpanel said last month.

The pressure on suppliers comes despite supermarkets facing growing scrutiny from Britain’s grocery industry watchdog, the Groceries Code Adjudicator (GCA), which launched its first formal investigation into a supermarket in February, with an inquiry into allegations that Tesco delayed payments to suppliers and unfairly handled payments for shelf promotions. More recently, as the Guardian revealed last week, the watchdog has asked Morrisons to explain why it is seeking unscheduled payments from suppliers.

Begbies Traynor appeared to blame aggressive price-cutting and delays in payments to suppliers for much of the misery being endured by firms in this sector.

Julie Palmer, a partner and retail expert at the firm, said: “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.”

She added: “Some are even looking into launching their own food manufacturing facilities to give them even tighter control over costs and the ability to offer still more aggressive pricing – signalling yet another nightmare scenario on the horizon for the UK food supply chain.”

The GCA now has the power to fine supermarkets up to 1 per cent of their turnover if they are found to have breached the groceries code but Palmer claimed this may be of limited use because a recent study found that almost one in five suppliers to the 10 biggest retailers were reluctant to raise any issues with the regulator “for fear of retribution from their largest source of income”.

However, there has been some good news for suppliers; last week Aldi became the first retailer in the UK to sign up to a “fruit and veg pledge” drawn up by the National Farmers Union, which aims to improve long-term relationships with British growers and suppliers, improving their profitability.