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Supermarket price wars hit Food Producers in pocket

Food-producing companies that depend on supermarkets for their livelihood are struggling to make ends meet because of a “savage landscape”.

A survey by Begbies Traynor, the corporate rescue and recovery practice, said that the number of companies that manufacture food and beverages that are suffering “significant” distress has surged by 94 per cent to 1,414 over the past year, with small and medium-sized companies representing 1,267 of those in peril.

The pinch on supermarkets such as Tesco and Morrisons has been passed down the food chain, so to speak, with main suppliers putting off payments to companies that supply them.

Julie Palmer, a partner at Begbies Traynor, said that the price-cutting may soon be evident in the trading performance of the big supermarkets, but that it could have a deleterious effect on smaller suppliers.
“These mass price reductions have severe consequences for less established food retailers and suppliers, particularly SME’s, who now seem to be locked in a David and Goliath-style battle — although this time it appears David can’t win,” she 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.”

The situation could become more severe if Aldi and Lidl, the German discounters, achieve their aim of capturing a fifth of the British market. “As the majority of Aldi and Lidl’s packaged stock comes from overseas, struggling UK suppliers could find themselves squeezed even further, if not stamped out altogether,” Ms Palmer said.

The Groceries Code Adjudicator complained last month that food suppliers operated under a code of silence when it came to bullying tactics of the big grocery chains, which has impeded it in its attempts to stamp out unscrupulous behaviour.

The mistreatment of suppliers has risen up the political agenda after the accounting scandal at Tesco, Britain’s biggest supermarket chain, and complaints of “pay-to-stay” threats from Premier Foods, the owner of brands including Loyd Grossman and Mr Kipling, and B&Q.

Begbies’ analysis draws on legal and financial data from corporate filings.

Source: www.thetimes.co.uk - 20 April 2015