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Julie Palmer

Business Health Statistics

| July 20th 2015

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Begbies Traynor's Red Flag Alert research Q2 2015

Latest Red Flag Alert Report for Q2 2015

  • Number of UK food suppliers experiencing ‘Significant’ financial distress increases 54% in 12 months

As the UK’s largest supermarkets up their game in the race to win back customers from the German discounters, their means of slashing prices and delaying payments to suppliers means that the food retail industry has never been tougher for the UK’s smallest food suppliers, independent grocers and farmers, warns business recovery specialists Begbies Traynor.

According to Begbies Traynor's Red Flag Alert research for Q2 2015, which monitors the financial health of UK companies, the UK's food retailers continue to experience rising ‘Significant’ financial distress, increasing 38% to 5,258 struggling businesses over the past year (Q2 2014: 3,804), 97% of which (5092) are SMEs. However in reality the UK’s food supply chain that keeps these stores stocked is by far the biggest loser.

During Q2 2015, the UK Food and Beverage Manufacturers, which include many of the food suppliers and farmers that supply the major UK headquartered supermarkets, witnessed the highest year on year increase in ‘Significant’ distress of all sectors monitored by the Red Flag research, rising 54%, with 1,622 companies now struggling to make ends meet; up from 1,052 at the same stage last year.

Within this sector, 1,436 SME food suppliers are bearing the brunt of the supermarkets’ drastic turnaround strategies and the new savage landscape in the UK retail food industry, representing 89% of all struggling companies within this sector.

Julie Palmer, Partner and retail expert at Begbies Traynor, 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 the UK’s 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 the UK food supply chain.

“While it’s a welcome development that the Groceries Code Adjudicator now has the power to fine supermarkets up to one percent of their UK turnover if found to be in breach of the Code, this is unfortunately unlikely to have a major positive impact for the supply chain, as a recent sector study found that almost one in five suppliers to the UK’s 10 biggest retailers are reluctant to raise any issues with the industry regulator for fear of retribution from their largest source of income.”

Critical problems by Sector:

Sector

Q2 2014

Q2 2015

Percent change

Q1 2015

Q2 2015

Percent change

Automotive

88

66

-25%

89

66

-26%

Bars & Restaurants

146

87

-40%

108

87

-19%

Construction

499

377

-24%

438

377

-14%

Financial Services

49

56

14%

63

56

-11%

Food & Bev Mfr Beverage Mfrg

17

21

24%

18

21

17%

Food Retailing

39

32

-18%

45

32

-29%

General Retail

144

120

-17%

131

120

-8%

Hotels

22

22

0%

27

22

-19%

Ind Transport & Logistics

62

38

-39%

45

38

-16%

Leisure

20

20

0%

24

20

-17%

Media

68

34

-50%

45

34

-24%

Other Mfrg

195

122

-37%

153

122

-20%

Others

114

98

-14%

113

98

-13%

Printing & Packaging

18

16

-11%

22

16

-27%

Professional Services

83

52

-37%

51

52

2%

Real Estate

211

168

-20%

201

168

-16%

Sports & Recreation

25

21

-16%

23

21

-9%

Support Services

154

124

-19%

143

124

-13%

Telecoms & IT

97

69

-29%

73

69

-5%

Travel & Tourism

41

36

-12%

42

36

-14%

Uncoded   

558 

392 

-30% 

507 

392

-23%

Utilities

5

5

0%

6

5

-17%

Wholesaling

90

69

-23%

94

69

-27%

All Sectors

2,745

2,045

-26%

2,461

2,045

-17%

Critical problems by Region:

Region

Q2 2014

Q2 2015

Percent change

Q1 2015

Q2 2015

Percent change

East of England

237

163

-31%

210

163

-22%

London

471

370

-21%

435

370

-15%

Midlands

347

294

-15%

341

294

-14%

North East

77

51

-34%

60

51

-15%

North West

332

266

-20%

295

266

-10%

Nrthn Ireland

38

21

-45%

36

21

-42%

Scotland

145

59

-59%

101

59

-42%

South East

611

474

-22%

521

474

-9%

South West

183

138

-25%

170

138

-19%

Uncoded 

22

-77% 

12 

 5

-58% 

Wales

86

50

-42%

103

50

-51%

Yorkshire & Humberside

196

154

-21%

177

154

-13%

All Regions

2,745

2,045

-26%

2,461

2,045

-17%

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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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
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