Supermarkets sweeping away suppliers

Supermarkets slashing prices to revive flagging sales have led to a tripling in the number of food producers going bust in the last five years.

According to research from accountancy firm Moore Stephens cut-throat supermarket competition, as the traditional sector leaders face more intense pressure from budget players such as Aldi and Lidl, saw 162 food production companies enter insolvency last year. That is more than treble the 48 insolvencies in 2010 and 11% more than just a year ago.

Moore Stephens said food suppliers are bearing the brunt of the on-going supermarket price war as their profit margins are squeezed by big supermarket chains trying to offer consumers the lowest prices possible whilst maintaining their own profit margins.

This has been exacerbated by the announcement earlier this year of plans from both Lidl and Aldi to expand their presence in the UK, forcing domestic supermarket groups to find extra savings in their supply chains in order to compete more closely with the discounters.

This, claims Moore Stephens, has led to the other major supermarkets asking their food producers to lower their prices.

“The extreme buying and retail pricing strategies of big retailers mean smaller food producers are struggling to stay afloat. Food supplier insolvencies are still rising as small producers continue to be the major casualties in the supermarket price war,” said Duncan Swift, partner and head of food advisory at Moore Stephens. “With no end to the price war in sight, food manufacturers are finding themselves less and less able to subsidise the aggressive buying tactics of big retailers. It’s not just the pressure on the headline supply price itself, there are concerns about when that price will be paid as 120-day credit terms are commonplace. Supermarkets also demand unilateral deductions from prices for a company to remain on their suppliers list.”