As supermarkets continue to squeeze prices in a bid to attract consumers and lift profits, retail industry analysts are becoming concerned about the impact this will have not only on the retailers themselves but also firms in their supply chains. This concern has been thrown into sharp relief this week, with the news that the number of food producers entering insolvency has risen sharply in the past 10 months.
According to the latest market research by Moore Stephens accountants, 146 food production firms have entered insolvency since January of this year. This vastly tops the 114 supply chain firms which went bust in the entirety of 2013, with further insolvencies expected to register before the year is out.
The figures are somewhat concerning given the fact that, in the year to the end of September, the number of general company liquidations fell by 8 per cent in the UK. This indicates that the issue lies not in the country’s economy as a whole but, rather, between suppliers or production firms and the retailers or customers buying their stock.
Moore Stephens partner Duncan Swift points out that, even in extremely tough conditions, food producers in the supply chain are unwilling to speak out against the supermarkets purchasing their goods.
He says; “The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder.
“Supermarkets have engaged in questionable buying practices for years, but it’s getting worse and clearly wreaking havoc on the UK food production sector.
“The fear of losing business from supermarkets means that food producers rarely, if ever, complain about clear breaches of industry standards – that means there is no check on the highly aggressive buying practices of the supermarkets.”
This is not the first time consumers have had their attention drawn to the impact retail decisions can take upon the supply chain, as last Christmas a number of High Street retailers were criticised for demanding payment breaks from their suppliers. Debenhams, one of the chains involved, claimed that this was an “investment” to benefit both itself and its suppliers in future, but consumers at that point began to question whether retailers should have the degree of power over suppliers they currently have.
Although Moore Stephens resoundingly placed the blame for the uptick in supplier liquidations upon supermarkets, the British Retail Consortium (BRC) has argued that this is a very one dimensional way of examining the problem.
A spokesman said; “All major supermarkets know the only way to deliver consistent quality and value in a competitive market is by building long term sustainable relationships with their suppliers – that’s why so many suppliers have worked with the same retailer for so long.
“It is far too simplistic to blame retailers for this: there may be a number of reasons for failure and we don’t know if they supply retailers, and even if they do they are likely to have other customers.”
Do you agree with Moore Stephens’ assessment that supermarkets are actively damaging suppliers as a result of the supermarket price war?
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