The number of Scottish food and drink suppliers suffering “significant financial distress” has gone up by 55% in the last year amid a raging supermarket price war, new research says.
Business rescue firm Begbies Traynor said 115 Scottish food and drink suppliers displayed early signs of financial trouble in the first three months of 2015 compared to 74 a year earlier.
Food and drug retailers north of the border also fared badly, with 86% more firms feeling the pinch, according to the company’s Red Flag Alert research, which measures the financial health of British firms.
Companies that have had “minor” repayment claims worth less than £5,000 filed against them are considered to have experienced “significant” problems, as are those who fall foul of Red Flag’s credit risk scoring system.
The picture is worse for food and drink suppliers across the UK as a whole, with 1,414 getting into difficulties in the first quarter, up 94% year-on-year.
Begbies Traynor said small- to medium-sized UK food suppliers are getting hammered by supermarket price cuts and payment delays — more than 1,267 were significantly distressed in the first quarter, up 120% against 2014.
Furthermore, almost 4,700 UK food retailers were in distress, a rise of 66% on a year earlier.
Begbies Traynor partner Julie Palmer said “mass price reductions have severe consequences for less established food retailers and suppliers, particularly SME’s, who now seem to be locked in a David and Goliath-style battle; although this time it appears David can’t win.
“With £1 deals for fresh produce goods such as bread and milk remaining a firm feature at the major supermarkets, it’s no wonder that suppliers lower down the food chain are struggling to achieve a fair price for their produce.
“Meanwhile, wastage on farms continues to be a problem as suppliers are increasingly struck by last-minute order cancellations and overzealous cosmetic specifications set by the large supermarkets when it comes to the look of food that it will accept from farmers.”
The head of Scotland Food & Drink chief executive James Withers, said the UK grocery sector is experiencing upheaval as consumers change their shopping habits to sniff out the best deals.
“We’re using convenience stores much more and we’re much less likely to be loyal to a particular retailer. That has meant fierce competition on the high street and real pressure on both retailers and suppliers,” said Mr Withers, whose Holyrood-backed organisation is tasked with increasing the value of Scotland’s food and drink sector.
“However, my sense is that we’re faring better in Scotland than elsewhere in UK,” he added.
“Food and drink manufacturing has been growing at around 2.5 times the UK average since 2008 and Scotland’s reputation for quality produce has been strengthening.”