Supermarket price wars leave 100 suppliers facing insolvency

The ongoing price wars between Britain's major supermarkets could prove disastrous for food suppliers, with a new report saying that the continuous discounting could put 100 of them out of business.

A study from insolvency specialist Begbies Traynor says that there was a huge 92% increase in smaller food suppliers experiencing "significant financial distress" in the last three months of 2014 as a result of price cuts.

It says that smaller food retailers are being affected by the likes of Tesco, Sainsbury's and Asda who are embroiled in a price race to the bottom, as the number of them who are in significant distress rose by 61% in the last three months of 2013 to 4,388.

Julia Palmer, a partner at Begbies Traynor, said: "With shocking increases in distress among the supermarkets' main suppliers, the largest chains need to tread very carefully if they want to prevent a new crisis creeping up through their supply chain.

"Unless the supermarkets start treating their suppliers more fairly and find longer term solutions to their cost cutting exercise, we expect that more than 100 of these 1,410 'significantly' distressed food and beverage suppliers will fall into administration before the year is up."

It comes shortly after a report from the Federation of Small Businesses (FSB) which said that one in five small businesses have been the victim of "supply chain bullying" in the past two years.

Some 17% of 2,500 FSB members claimed that they had faced bullying, which the FSB described as "a serious deterioration of payment practices".

The report came in the wake of a Newsnight investigation which revealed that Premier Foods, the brand behind Ambrosia and Mr Kipling, had been allegedly asking for payments from its suppliers to continue doing business.

This practice, known as "pay to stay" is one of the most common forms of supply chain bullying and has a detrimental effect on the suppliers' finances.