Supermarket price war taking its toll on suppliers, says Begbies Traynor

The price war between the UK's supermarkets is causing problems for their suppliers and for smaller

The price war between the UK's supermarkets is causing problems for their suppliers and for smaller food retailers, according to a new report. Photo: Getty Images/Pixland

The supermarket price war is having a “devastating” effect on suppliers and smaller grocers after a report showed the number of food and drink manufacturers in “significant” financial distress jumped by 94% on a year ago.

Restructuring firm Begbies Traynor’s Red Flag Alert research said there were 1,414 such businesses in trouble in the first quarter of the year.

In addition, there were almost 4,700 food retail businesses in distress, a rise of 66% on a year earlier. This increase jumps to 120% when focusing on the small and medium-sized firms in the sector.

Begbies Traynor said the supermarket sector’s strategy of slashing prices was grinding many food suppliers and smaller high street grocers into the ground.

The survey adds that the introduction of the Prompt Payment Code in 2008, meant to speed up the settlement of bills to suppliers from major businesses, has had little effect.

Begbies Traynor partner Julie Palmer said: “With £1 deals for fresh produce goods such as bread and milk remaining a firm feature at the major supermarkets, it’s no wonder that suppliers lower down the food chain are struggling to achieve a fair price for their produce.

“Meanwhile, wastage on farms continues to be a problem as suppliers are increasingly struck by last-minute order cancellations and overzealous cosmetic specifications set by the large supermarkets when it comes to the look of food that it will accept from farmers.”

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In contrast, she said that the price cutting strategy of the major supermarkets was showing signs of progress, with Tesco sales on an improved trend.

Ms Palmer said: “These mass price reductions have severe consequences for less established food retailers and suppliers, particularly small and medium-sized enterprises, who now seem to be locked in a David and Goliath-style battle; although this time it appears David can’t win.”