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Supermarket price wars to blame as number of food producers going bust triples

The battle among retailers to claw back market share is thought to be the reason why many farmers have been forced out of business.

Olivia   Midgley

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Olivia   Midgley
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Moore Stephens said 162 food production firms went bust in 2015, compared to 48 in 2010
Moore Stephens said 162 food production firms went bust in 2015, compared to 48 in 2010

Supermarket price wars have been blamed for the increasing number of food producers going out of business.

 

New figures have revealed the number has tripled in the last five years, with retailers squeezing suppliers’ profit margins in the battle to offer consumers low prices and claw back market share.

 

Accountancy firm Moore Stephens said 162 food production firms went bust in 2015, compared to 48 in 2010.

 

Over the past year alone, the number of firms falling into insolvency increased by 11 per cent.

 

Duncan Swift, partner and head of food advisory at Moore Stephens, blamed the supermarket sector’s ongoing price war, sparked by the growth of discounters Aldi and Lidl, which has seen the ‘big four’ lose out.

 

Consumer research body Kantar Worldpanel said consumer prices had fallen in the supermarket sector for almost 18 months.

 

Mr Swift said: “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.

 

“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.

 

“With the likes of Aldi and Lidl announcing further plans for expansion, competition between budget and traditional supermarkets is only going to heat up. Just this month, Sainsbury’s has announced a major review of its price discounting policies."

 

The pressure retailers applied to suppliers was brought to the fore earlier this year when an investigation by the Groceries watchdog Christine Tacon found Tesco repeatedly breached the legally binding code by delaying payments to suppliers ‘on a significant scale’.

 

Mr Swift added: "The Groceries Code Adjudicator recently issued its first censure of a supermarket for its treatment of suppliers, particularly regarding late payment and unilateral back-margin deductions – a long anticipated move.

 

"However, as these unreasonable behaviours are prevalent throughout the supermarket sector, for the regulator to begin to positively change these behaviours it needs to be prepared to show its teeth more often.”

 


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