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Julie Palmer

Business Health Statistics

| October 22nd 2014

More News by Julie Palmer
Supermarket woes worsen as price war takes its toll

Red Flag Alert Report for Q3 2014

  • Three national supermarkets have incurred adverse financial actions* over the past quarter
  • Supply chain issues and changing customer spending patterns prove the biggest threats

The bitter price war between the UK's largest supermarkets will do little to entice shoppers back from the value German food retailers as consumer spending patterns are changing for good, warns business recovery specialists Begbies Traynor.

According to Begbies Traynor's Red Flag Alert research for Q3 2014, which monitors the financial health of UK companies, the UK's food retailing industry experienced the sharpest increase in ‘Significant’ financial distress of all sectors monitored, rising 11% over the past three months to 4,239 struggling businesses. On an annualised basis, the sector’s fortunes have deteriorated even further, with ‘Significant’ financial distress increasing 53% from 2,766 last year.

Meanwhile, more severe cases of ‘Critical’ financial distress rose 23% over the last quarter, including seven large food retailers, categorised as businesses with more than 500 employees. Of these, three are well-known household brands, all of which have incurred adverse financial actions* over the past quarter; typically an indicator that they are failing to pay some creditors until well beyond the agreed terms.

Julie Palmer, Partner and Retail analyst at Begbies Traynor, said:

"With Tesco in trouble following revelations of its £250m profits overstatement, and dampened sales expectations from Morrisons and Sainsbury’s, all have been forced to cut prices in a bid to encourage shoppers back through their doors and recapture market share. But despite fresh produce deflation of around four percent, this is not having the desired effect as consumer tastes are changing.

"Spoilt for choice within the traditional supermarket model and against a backdrop of falling living standards and stagnating real wage inflation, UK consumers are more aware than ever of the low prices available at Aldi and Lidl. The German discounters’ focus on simpler product ranges and successful own-label products means that, regardless of the ongoing price war, they can continue to lead on price while perfectly matching what shoppers now demand from their weekly shop.

“While many of the Big Four supermarkets are losing market share to the discounters due to price pressure, recent events have shown that the real issues lie within their own processes, which include supply chain disputes, inefficient legacy sites, and in some cases poor financial management. These operational issues need to be fixed quickly to avoid Q3’s poor performance turning into a depressed Christmas sales period.

“Whatever the outcome of the Tesco investigation, over the coming year we can expect to see the return of a cleaner, more transparent food retail industry, which both engages more with the end customer but also allows suppliers to re-engage with supermarkets on better and more open terms.”

Critical problems by Sector:

Sector

Q3 2013

Q3 2014

Percent change

Q2 2014

Q2 2014

Percent change

Automotive

83

92

11%

88

92

5%

Bars & Restaurants

120

130

8%

146

130

-11%

Construction

494

435

-12%

499

435

-13%

Financial Services

77

75

-3%

49

75

53%

Food & Bev Mfr Beverage Mfrg

12

18

50%

17

18

6%

Food Retailing

37

48

30%

39

48

23%

General Retail

165

134

-19%

144

134

-7%

Hotels

34

34

0%

22

34

55%

Ind Transport & Logistics

61

63

3%

62

63

2%

Leisure

30

24

-20%

20

24

20%

Media

62

57

-8%

68

57

-16%

Other Mfrg

216

173

-20%

195

173

-11%

Others

122

106

-13%

114

106

-7%

Printing & Packaging

23

21

-9%

18

21

17%

Professional Services

86

87

1%

83

87

5%

Real Estate

238

189

-21%

211

189

-10%

Sports & Recreation

16

27

69%

25

27

8%

Support Services

167

141

-16%

154

141

-8%

Telecoms & IT

95

64

-33%

97

64

-34%

Travel & Tourism

35

35

0%

41

35

-15%

Utilities

5

2

-60%

5

2

-60%

Wholesaling

114

98

-14%

90

98

9%

All Sectors

2,946

2,606

-12%

2,740

2,606

-5%

Critical problems by Region:

Region

Q3 2013

Q3 2014

Percent change

Q2 2014

Q3 2014

Percent change

East of England

232

189

-19%

237

189

-20%

London

523

437

-16%

471

437

-7%

Midlands

394

355

-10%

347

355

2%

North East

67

78

16%

77

78

1%

North West

335

316

-6%

332

316

-5%

Nrthn Ireland

41

68

66%

38

68

79%

Scotland

146

129

-12%

145

129

-11%

South East

642

566

-12%

611

566

-7%

South West

210

171

-19%

183

171

-7%

Wales

118

91

-23%

86

91

6%

Yorkshire & Humberside

214

197

-8%

196

197

1%

All Regions

2,922

2,597

-11%

2,723

2,597

-5%

* adverse financial actions include County Court Judgements (CCJs) totalling more than £5,000 within a three month period, typically an indicator that businesses are failing to pay creditors until well beyond agreed payment terms

Julie Palmer

About the author

Julie Palmer

Regional Managing Partner

Meet our Team of Experts

Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.

Julie is a member of the Insolvency Practitioners Association and the None Administrative Receivers Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.

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