There has been a 54% increase in the number of suppliers to supermarket who are in ‘severe’ distress, according to the Begbies Taynor Red Flag Report of 2015 Q2. 1622 food and beverage manufacturers are now struggling to stay afloat due to extreme cashflow pressures with 9 out 10 of those businesses being in distress as a direct result of supermarkets squeezing margins and making late payments.
As supermarkets struggle to claw back market share from low cost supermarkets such as Lidl and Aldi, lowering prices has worked well for the likes of Tesco to bring back the footfall, whose Q1 performance is hailed a success.
There is little indication of this trend changing as suppliers are continuously squeezed to severe levels. This is coupled with late payment which is estimated to be on average over a month past the agreed date. There are is also talk of supermarkets looking into creating their own manufacturing processes to further control costs.
Supermarkets are regulated under the Groceries Code Adjudicator which allows suppliers to confidentially report issues with the supermarkets they supply.
The recent YouGov survey showed a drop in the number of suppliers highlighting issues with the ten large retailers over the last 12 months from 79% to 70%.
A good example on how the Groceries Code Adjudicator aids suppliers can be seen in how much supermarkets charge suppliers for customer complaints which ranged from £0-£45 per complaint. The majority of complaints are now being satisfied within the supermarket which is the more cost effective option thanks to the work from the Groceries Code Adjudicator.
Adjudicator Christine Tacon comments “We still have some way to go in important areas but this is a clear sign we are on the right track. Suppliers are more aware of the GCA and its work and fewer now believe the GCA will not be able to do anything if they bring an issue to me.”