Food manufacturers worst hit by insolvencies

The number of crisis-hit food manufacturers in Britain nearly doubled in the first quarter of this year, as supermarket chains clamped down on suppliers and costs to fend off discounters from overseas.

Begbies Traynor, the Aim-quoted restructuring and insolvency specialist, said small food manufacturers and suppliers to the big UK supermarkets were suffering particularly, with "1,414 businesses struggling to make ends meet, compared to 728" this time last year.

Julie Palmer, a partner of the insolvency group, said the big supermarkets' strategy of cutting prices and paying suppliers late was taking its toll on less established food retailers and suppliers, particularly SMEs. She said they seemed to be "locked in a David and Goliath-style battle ... This time it appears David can't win."

Suppliers are struggling to cope with last-minute changes to orders and cancellations as well as the rise of Aldi and Lidl, which import much of their stock from abroad.

Intense competition among supermarket giants and the incursion of discounters is hurting small UK retailers such as corner shops and regional businesses as well, said Begbies. Begbies said there was a two-thirds rise in UK retailers showing signs of "significant" distress as measured by legal claims for unpaid bills or a sharp deterioration in credit scores.

Begbies Traynor, which every quarter monitors the levels of financial stress among UK companies, said there had been an unexpected rise in companies in trouble across the country.

While insolvency rates have been falling - down 9 per cent in 2014 against the previous year, according to the Insolvency Service - the number of companies in imminent danger of collapse, as measured through county court judgments and windup petitions, rose 4 per cent in the three months to April. Increases in the North East, Midlands and Wales were in double digits.

London was the only region to show much sign of reduced stress, with the number of companies facing creditor action falling 4 per cent.

Ms Palmer said: "We are in a recovery cycle so we would expect fewer companies to fail and signs of less distress. But we are not seeing it."

Begbies said the general election had prompted many British businesses to put investment plans on hold with companies delaying recruitment and freezing pay until after the May vote.

"Concerns over the outcome of the most uncertain election in a generation have led to a state of stagnation". This may have long-term repercussions, said Ms Palmer. "Companies that pause will miss out on opportunities that they might never see again".

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