Supermarket price wars drive food producers to bankruptcy
25 Nov 2014
A rise in the number of food produces going bust in the UK is being attributed to a supermarket price war, BBC reported.
The number of food producers entering insolvency had reached 146 this year an increase from 114 last year, according to research by accountancy firm, Moore Stephens.
Moore Stephens said food producers had become cannon fodder in the ongoing supermarket price war.
According to accountancy firm, supermarkets were squeezing producers in order to cut check-out prices and boost profits.
However, the British Retail Consortium said it was "too simplistic" to blame supermarkets for the rise in failures.
According to Moore Stephens, the increase in food producer insolvencies was in contrast to the 8 per cent drop in company liquidations generally in the 12 months to the end of September.
According to Duncan Swift, a partner at the firm, the supermarkets were going through the bloodiest price war in nearly two decades and were using food producers as the cannon fodder.
He added supermarkets had engaged in questionable buying practices for years, but it was getting worse and clearly wreaking havoc on the UK food production sector.
Tough competition in the supermarket sector had intensified with the entry of discounters such as Lidl and Aldi.
According to analysts at Moore Stephens who studied data at Companies House, 28 per cent more specialist manufacturers had gone into insolvency this year as against 2013.
In one of the bigger cases, 170 jobs were lost when Sussex-based fresh pasta maker Pasta Reale Ltd went into administration in August after it lost three major supermarket contracts in a year.
Swift said UK supermarkets were trying to compete on price with Aldi and Lidl but with profit margins that were much higher than those of these discount chains.
In order to try and make the maths work, the big supermarkets were putting food producers under so much price pressure that there had been a sharp increase in the number of producers going bust.
Each year Tesco, Morrisons, Sainsbury's and Asda spent billions of pounds cutting prices in a bid to match the rates of German discount retailers, yet one million fewer customers were visiting the ''big four'' stores each week in favour of Aldi and Lidl.
Regulations were however introduced in 2010 in an attempt to protect suppliers and ensure that the prices were fixed by mutual agreement.
Moore Stephens identified these rising insolvencies among food suppliers as worrying and a stark contrast to the overall 8 per cent fall in liquidations in the economy as a whole over the same period.
