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Supermarket price war could force more than 100 food suppliers out of business

| International retailers

The escalating price war in the UK between the supermarket multiples and discounters could force over 100 food and drink suppliers out of business this year, according to a new report.

The study by business recovery specialist Begbies Traynor found that while some of the major supermarkets reported better than expected food sales over the festive period, their focus on drilling down prices to attract shoppers is pushing many suppliers and smaller high street grocers close to the edge. 

Begbies Traynor's Red Flag Alert research, which monitors the financial health of UK companies, found that during Q4 2014 the food retailing industry experienced one of the sharpest increases in 'Significant' financial distress of all sectors monitored, rising 58% to 4,552 struggling businesses compared to the same quarter last year. 

The worst performing sector was the food and beverage manufacturing industry, of which many companies supply the supermarket multiples. Begbies Traynor said the sector witnessed a 92% jump in 'Significant Distress', with 1,410 businesses now struggling, compared to 733 at the same time last year. Small and medium sized enterprises were the worst effected by having their margins squeezed and payment terms extended. 

The analysis also found that the number of smaller food retailers in 'Significant' distress had risen significantly in Q4, by 61% to 4,388. 

Julie Palmer, Partner at Begbies Traynor, said: "In recent weeks, Asda and Sainsbury's have promised £450m worth of price cuts between them, Morrisons has started a search for a new CEO who can return them to growth, while Tesco has set out major plans to reassert its dominance over the UK grocery market. With the battle lines drawn, the supermarket price war is intensifying and it looks like the UK's smallest food suppliers are bearing the brunt. 


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