The food retail industry has never been tougher for firms in Yorkshire, according to business recovery specialist Begbies Traynor.
As the UK’s largest supermarkets up their game in the race to win back customers from the German discounters, strategies of slashing prices and delaying payments to suppliers are putting the region’s food and drink sector at risk of serious financial distress, according to the new study.
Begbies Traynor’s Red Flag Alert research for Q2 2015, which monitors the financial health of UK companies, showed the UK’s food retailers continue to experience rising ‘significant’ financial distress, up by 38 per cent to 5,258 struggling businesses over the past year.
However, in reality the food supply chain that keeps these stores stocked is by far the biggest loser. Yorkshire’s concentration of food and drink businesses, which contribute £1.7bn to the regional economy, is the UK’s largest, according to Welcome to Yorkshire.
This leaves the region particularly vulnerable to the effects of draconian measures by the major supermarkets, the study claimed.
During the second quarter of this year, Yorkshire’s food and beverage manufacturers, which include many of the producers and farmers that supply the major supermarkets, witnessed the region’s highest year-on-year increase in ‘significant’ distress of all sectors monitored by the Red Flag research. This rose 69 per cent, with 149 companies now struggling to make ends meet, up from 88 businesses at the same stage last year. In the last three months alone 20 more businesses in the sector began to show symptoms of distress.
Across the UK as a whole, the sector has seen a 54 per cent hike in distress levels, with 1,622 companies affected, up from 1,052 in Q2 last year. Yorkshire food retailers themselves are also bearing the brunt of competitive discounting by the large supermarkets.
The sector saw an annual increase of 19 per cent in ‘significant’ distress to Q2 2015, affecting 419 businesses, compared with 351 in Q2 2014. The trend was reflected nationally with a UK average 38 per cent increase in food retail business distress year on year.
Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “With Tesco recently hailing the success of its Q1 performance after four rounds of price cuts since January and even Waitrose now joining the sector’s discounting foray, clearly the novelty of a bargain continues to resonate with consumers.
“Unfortunately the retail environment is set to become even bleaker for Yorkshire’s many small food suppliers who are facing the harsh reality that price slashing is not just a short term pain but something that’s here to stay.
“The supermarkets have managed to successfully rebase their own models by reducing product ranges, moving away from bulk-buy offers and squeezing supplier margins still further, while failing to clean up their act on late payments, taking more than a month longer than agreed terms to settle debts with suppliers. Some are even looking into launching their own food manufacturing facilities to give them even tighter control over costs and the ability to offer still more aggressive pricing – signalling yet another nightmare scenario on the horizon for Yorkshire’s food supply companies, which are so vital to our regional economy.”