Supermarket price wars squeeze more food firms into bankruptcy


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Supermarkets are putting pressure on food producers, pushing many into insolvency, says Moore Stephens
Supermarkets are putting pressure on food producers, pushing many into insolvency, says Moore Stephens

Related tags Bankruptcy

The number of UK food companies entering bankruptcy is up 28% this year compared to 2013, according to research from accountancy firm Moore Stephens.

The firm said the large increase in insolvencies contrasts with an 8% fall in company liquidations across all sectors. In the food industry, 146 companies entered insolvency in 2014, compared to 114 in 2013.

Moore Stephens Partner, Duncan Swift, who leads the firm’s Food Advisory Group, said in a statement: “The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder…The fact that food producer insolvencies are rising so rapidly, while business insolvencies are falling overall, shows just how much pressure the sector is under.”

The research found that over the past five years, too, insolvencies in the UK as a whole have decreased while they have increased among food producers.

“UK supermarkets are trying to compete on price with Aldi and Lidl but with profit margins that are far higher than these discount chains,”​ Swift said. “To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing.”

The firm said that its figures may not tell the whole story, as many small producers and farmers act as sole traders or in simple partnerships, so their financial situations are less easily researched.

Meanwhile, food producers that are being squeezed by supermarkets often do not complain because they are afraid of losing key contracts, Moore Stephens said.

 ​“It’s a raw deal for food producers who need the supermarkets to reach the public, but who can’t afford the terms of business that the supermarkets foist on them,”​ Swift said.

The firm’s findings build on recent research from OC&C Strategy Consultants, which reported flat margins on average among UK food and drink companies over the past two years. It also blamed declining performance in the grocery retail sector; the UK’s top four supermarket chains have seen profit margins squeezed to just 4.4% last year, 0.1% down on 2012.

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