Supermarket price wars killing off food producers?
This cost-cutting from the supermarkets of the UK has seen a sharp increase in insolvency among food producers, with the number of companies in the food production sector entering insolvency rising by 28% in the 12 months.
Duncan Swift, a partner at Moore Stephens, says: "Supermarkets are trying to compete on price with Aldi and Lidl, but with profit margins that are far higher than these discount chains."
So, in the case of farmers and the like, who often operate as sole traders and therefore aren't registered at Companies House, this means that if they're suffering, Moore Stephens’ figures are likely to not tell the whole picture of how hard it is for food producers.
Those in the food-making industry are waiting longer to get paid from supermarkets too. Jeff Longhurst, chief executive of the ABFA, said: “Many in the food and drink sector believe the problems with payment terms have now become endemic.”
Tesco – the UK’s largest supermarket by market share – revealed a £263m shortfall in profits in October, as a result of problems with the timing of payments received from its own suppliers.
"Supplier contributions cause major cash-flow problems for food producers and can tip them into insolvency," added Swift. "It’s a raw deal for the 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."