Supermarket price wars see insolvencies triple for food producers
The number of food producers entering into insolvency in the UK has more than tripled over the past five years, according to a new report. And supermarket price wars have been named as a contributory factor.
The survey, by accountancy firm Moore Stephens, found that 162 food producing businesses fell into insolvency during 2015. This is more than three times the 48 insolvencies experienced by the sector in 2010. It also represents an 11% increase on insolvency levels in 2014.
The report claims that ongoing supermarket price wars have been a major contributory factor. The emergence of foreign-owned ‘discounter’ supermarkets such as Aldi and Lidl has had a huge impact on the market.
According to consumer research body Kantar Worldpanel, prices have on the whole fallen within the supermarket sector for nearly 18 months. This may be seen as good news for consumers but it has left many food producers and suppliers struggling to remain profitable.
The report says that supermarkets are squeezing their suppliers as they strive to offer the lowest deals to their customers while maintaining their own profit levels. The situation could be set to continue or worsen as the discounter supermarkets continue to expand.
The German-owned Aldi chain currently has more than 600 stores in the UK. Earlier this year it announced plans to open 80 new stores by the end of 2016, creating around 5,000 new jobs in the process. In the longer term, the company said it intends to have a thousand stores – an increase of 40% - by 2022. Fellow German discounters Lidl have also announced their own expansion plans for the UK.
Many food producers are reliant on the big supermarket chains. According to the Moore Stephens report, more than 70% of producers’ total food produce goes “across the buying desks of the UK's top 10 supermarkets”.
This can leave producers and suppliers highly susceptible to pricing strategies employed by the supermarkets as they vie with each other for market share. With smaller margins and with greater pressures being placed upon them, firms facing insolvency or the need for recovery measures should seek advice as soon as possible to aid efforts to rectify their situation.
By Phil Smith