Three supermarkets faced financial action in Q3

The business recovery specialist said adverse financial actions included county court judgements totalling more than £5,000 over a three month period.

Its red flag report for the third financial quarter (Q3) of 2013 claimed supply chain issues and changing customer spending patterns posed the biggest financial threats to the sector.

The report, which monitors businesses’ financial health, recorded an 11% rise in ‘significant’ financial distress reported by food retailers, the biggest increase in any industry, compared to last year’s Q3 figure. A total of 4,239 food retailers faced financial struggles as at October 1, 2014, Begbies Traynor said.

It also claimed the sector’s fortunes had deteriorated even further on an annualised basis, with ‘significant’ financial distress increasing by 53%.

‘Critical’ financial distress​

Cases of ‘critical’ financial distress among food retailers had risen by 30% from last year’s Q3 figure to this year’s Q3 and included seven large food retailers, according to the report. Of these, three were national supermarkets, which faced financial actions.

It was an indication they were failing to pay creditors until well beyond agreed terms, Begbies Traynor, which did not disclose their identity, said.

With Tesco in trouble for overstating expected half-year profits by up to £250M last month​ and Morrisons and Sainsbury struggling with sales, retailers were slashing prices to regain market share from the discounters.

“But despite fresh produce deflation of around four percent, this is not having the desired effect as consumer tastes are changing,”​ said Julie Palmer, partner and retail analyst at Begbies Traynor.

Aldi’s and Lidl’s focus on simpler product ranges and successful own-label products meant that they could continue to lead on price and give shoppers what they wanted for their weekly shop, said Palmer.

Her comments came as Aldi revealed the launch of an organic food range​, widening its offering to UK shoppers.

Real issues​

Palmer added that recent events had shown the real issues lay not with price, but within retailers’ own processes, including “supply chain disputes, inefficient legacy sites, and in some cases poor financial management”.​

“These operational issues need to be fixed quickly to avoid Q3’s poor performance turning into a depressed Christmas sales period.”​

Whatever the outcome of the Tesco investigation, the coming year would likely bring the return of a cleaner, more transparent food retail industry, said Palmer. This would lead to retailers engaging more with shoppers and allowing suppliers to re-engage with them on better and more open terms, she said.

Tesco is expected to reveal more details about the probe into its profits overstatement in its delayed interim results tomorrow (October 23).