Food and drink suppliers under threat from supermarket price war

Small food and drink suppliers are struggling at the sharp-end of the supermarket price war in the UK with more than 100 likely to go bust by the end of the year, according to a new report.

Tesco, Asda, Sainsbury’s and Morrisons are at the centre of a bitter war of attrition partly caused by the success of German-owned discount grocers Lidl and Aldi, whose low prices have led to large numbers of customers migrating to them and deserting the ‘big four.’

In an effort to react the main supermarkets have been squeezing suppliers’ profit margins and stretching payment terms in a bid to offer consumers the lowest prices.

The number of food or drink manufacturers facing “significant distress” leapt by 92 per cent during the past 12 months to 1,410, of which 1,240 are small and medium-sized businesses, business recovery firm Begbies Traynor has found.

Julie Palmer, a partner at the firm, said: “You’ve got a David and Goliath situation; the supermarkets are powerhouses and they call the shots to the suppliers.

“With shocking increases in distress among the supermarkets’ main suppliers, the large chains need to tread very carefully if they want to prevent a new crisis creeping up through their supply chain.”

Many price promotions are passed on to suppliers who are asked to agree to a drop in the amount of money they receive per shipment.

Dairy farmers have complained that a plunge in the price of a pint of milk, which has fallen to 22p in some stores, has put their businesses in jeopardy.

One dairy co-operative, First Milk, has had to withhold £10 million in payments to 1,000 farmers because of cash flow problems.

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