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Fri 16th Jan 2015 - Begbies Traynor: price war could send more than 100 food suppliers bust
Begbies Traynor – supermarket price war could send more than 100 food suppliers bust: While most of the UK’s largest supermarkets reported stronger than expected food sales over the festive period, their ongoing and brutal price war is pushing many food suppliers to the brink, business recovery specialist Begbies Traynor has warned. According to Begbies Traynor’s Red Flag Alert research for Q4 2014, which monitors the financial health of UK companies, the UK’s food retailing industry experienced one of the sharpest increases in ‘Significant’ financial distress of all sectors monitored, rising 58% to 4,552 struggling businesses compared to the same quarter last year (Q4 2013: 2,878). Meanwhile the worst performing sector was the UK’s food and beverage manufacturing industry. Companies in this sector, many of which supply the major UK headquartered supermarkets, witnessed a colossal 92% increase in ‘Significant Distress’, with 1,410 businesses now struggling to make ends meet, compared to 733 at the same stage last year. The statistics show that the UK’s SME food retailers and suppliers have been the worst casualties so far of the enduring price war between the UK’s supermarket giants, who have been slashing prices, while squeezing suppliers’ margins and elongating payment terms in a bid to offer consumers the lowest prices available in today’s competitive retail environment. Further analysis reveals that the number of smaller food retailers in ‘Significant’ distress rose by 61% to 4,388 in Q4 2014 from 2,731 last year (representing 96% of all struggling food retailers in the UK), while there was a 113% increase in the number of SME food and beverage manufacturers suffering ‘Significant’ distress in Q4 2014 to 1,240 from 582 last year (88% of the total). Julie Palmer, partner at Begbies Traynor, said: “In recent weeks, Asda and Sainsbury’s have promised £450m worth of price cuts between them, Morrisons has started a search for a new CEO who can return them to growth, while Tesco has set out major plans to reassert its dominance over the UK grocery market. With the battle lines drawn, the supermarket price war is intensifying and it looks like the UK’s smallest food suppliers are bearing the brunt. A perfect storm is brewing for SME food suppliers at the bottom of the food supply chain, with many suffering a double hit from larger suppliers demanding “loyalty” payments as well as vanishing margins as a result of the inevitable aggressive supermarket price war. Adding to their misery, the UK’s food producers and suppliers have failed to see any benefit from the rise in popularity of the German discounters Aldi and Lidl, since much of their canned and packaged stock is sourced from overseas. With shocking increases in distress among the supermarkets’ main suppliers, the largest chains need to tread very carefully if they want to prevent a new crisis creeping up through their supply chain. Even the government’s appointment of a grocery code adjudicator last year seems to be having little impact, with industry insiders reporting that the new watchdog lacks real powers and is still failing to protect producers from being squeezed by the supermarkets. Unless the supermarkets start treating their suppliers more fairly and find longer term solutions to their cost cutting exercise, we expect that more than 100 of these 1,410 ‘Significantly’ distressed food and beverage suppliers will fall into administration before the year is up. Worryingly, with 3.6 million people employed in the UK food supply chain, the economic and political risks associated with the current price war are now reaching boiling point ahead of May’s election. Although Tesco plans to close some of its local Express shops this year, across the rest of the industry takings at smaller stores in town centres are up considerably, demonstrating consumers’ preference for convenience, shopping little and often with more frequent shops but smaller basket sizes. With mini-supermarkets on every corner and Aldi and Lidl opening local shops as fast as they can find the sites, competition among food retailers on the high street is still rife, making life all the more difficult for smaller, independent convenience stores who don’t have the bargaining power with suppliers or the access to premium locations afforded by their larger peers.”
 
Restaurant Group hires new non-executive: The Restaurant Group has hired Debbie Hewitt as an independent non-executive director with effect from 1 May 2015. The company said: “Mrs Hewitt is a very accomplished company director with extensive public company expertise in the consumer sector both as an executive and as a non-executive director, including current non-executive public company appointments as Chair of Moss Bros Group and senior non-executive director of Redrow and NCC Group. Her executive career was spent at RAC where she was group managing director and prior to that in retail management with Marks and Spencer. She is a Fellow of the Chartered Institute of Personnel Development and was awarded the MBE for services to business and the public sector in 2011.” Alan Jackson, chairman of The Restaurant Group, said: “I am delighted to welcome Debbie Hewitt to the board of The Restaurant Group. She brings many years of company experience in consumer-focused businesses. I am confident that she will be a valuable addition to the Board.” 

Essenden begins search for new finance director: Leisure operator Essenden has announced that finance director Richard Darwin has informed the Board of his intention to leave the company to join The Gym Group as chief financial officer. The company stated: “Richard has a six-month notice period and he will continue with his existing responsibilities until a successor has been found and to ensure an orderly transition. A search for his successor will begin shortly.”


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