Many small and average-sized suppliers to British supermarkets are in financial trouble as those retailers pay increasingly competitive prices and increase payment periods as a result of the ever-enduring price war they have wage against each other and the popular Lidl and Aldi.
SME has to pre-finance large retailers
A Begbies Traynor research, a financial advice agency specialized in putting companies back on track, showed that the number of British food suppliers in financial trouble has grown 54 % over the past 12 months. Particularly the small and medium-sized companies, the small independent retailers and farmers struggle in this tough business climate.
The research place the blame squarely with the large British retailers: their efforts to lure customers back from Lidl and Aldi, using the lowest price possible has forced Britain's small and medium-sized companies into a bind. In the second quarter, 1,622 companies had trouble staying afloat, up from 1,052 a year before that.
The overwhelming majority of the food suppliers that are in trouble are small or medium-sized companies. 1,436 of these companies feel the pressure from the small margins and a structural lack of working capital. That is because the large British retailers continuously extend their payment periods, which basically means the small, medium-sized companies are funding the large retailers which in turn means they become more vulnerable themselves. The agency states that this is an untenable situation.
Pay a month later than agreed
"Tesco was cheering over its successful first quarter performance after 4 price cuts since January", Julie Palmer, retail expert and Begbies Traynor partner said. "Even Waitrose joined in on the retail branch's price war and that is something consumers are drawn to. Small food suppliers will now have to deal with the fact that structural price cuts are part of the every-day retail climate."
Palmer believes the large British retailers have adapted their own business model by changing the depth of their product range. They have also tried to avoid any discount that gets customers to buy multiple items at once. "Suppliers that have any margins left, are squeezed dry. The retailers have also neglected to improve their own payment behaviour and have no problem to pay a month later than agreed upon."
"Retailers are a cheap target"
The Begbies Traynor study's timing is remarkable to say the least: the British Competition and Markets Authority (CMA) recently stated that supermarkets still misled customers with their discounts, which weren't as steep as claimed. Nevertheless, these practices were not as frequent as to constitute a general structural case of deception, which was exactly what the British consumer organization Which? claimed as it filed a complaint with the CMA.
Malcom Walker, CEO of British frozen food retailer Iceland, reacted sharply to CMA's decision, calling Which?'s claim to be bollocks: "You look at the number of investigations into food retailers – and why? It’s political, we are a cheap target. They never find anything. It is intensely competitive, the customers are getting an amazing deal – we are selling things often at cost or sometimes below cost."