Begbies Regulatory News (BEG)

Supermarket woes worsen as Price War takes its toll

· Three national supermarkets have incurred adverse financial actions* over the past quarter

· Supply chain issues and changing customer spending patterns prove the biggest threats

The bitter price war between the UK's largest supermarkets will do little to entice shoppers back from the value German food retailers as consumer spending patterns are changing for good, warns business recovery specialists Begbies Traynor.

According to Begbies Traynor's Red Flag Alert research for Q3 2014, which monitors the financial health of UK companies, the UK's food retailing industry experienced the sharpest increase in 'Significant' financial distress of all sectors monitored, rising 11% over the past three months to 4,239 struggling businesses. On an annualised basis, the sector's fortunes have deteriorated even further, with 'Significant' financial distress increasing 53% from 2,766 last year. 

Meanwhile, more severe cases of 'Critical' financial distress rose 23% over the last quarter, including seven large food retailers, categorised as businesses with more than 500 employees. Of these, three are well-known household brands, all of which have incurred adverse financial actions* over the past quarter; typically an indicator that they are failing to pay some creditors until well beyond the agreed terms. 

Julie Palmer, Partner and Retail analyst at Begbies Traynor, said:

"With Tesco in trouble following revelations of its £250m profits guidance overstatement, and dampened sales expectations from Morrisons and Sainsbury's, all have been forced to cut prices in a bid to encourage shoppers back through their doors and recapture market share. But despite fresh produce deflation of around four percent, this is not having the desired effect as consumer tastes are changing.

"Spoilt for choice within the traditional supermarket model and against a backdrop of falling living standards and stagnating real wage inflation, UK consumers are more aware than ever of the low prices available at Aldi and Lidl. The German discounters' focus on simpler product ranges and successful own-labelproducts means that, regardless of the ongoing price war, they can continue to lead on price while perfectly matching what shoppers now demand from their weekly shop.

"While many of the Big Four supermarkets are losing market share to the discounters due to price pressure, recent events have shown that the real issues lie within their own processes, which include 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, over the coming year we can expect to see the return of a cleaner, more transparent food retail industry, which both engages more with the end customer but also allows suppliers to re-engage with supermarkets on better and more open terms."

- Ends -

* adverse financial actions include County Court Judgements (CCJs) totalling more than £5,000 within a three month period, typically an indicator that businesses are failing to pay creditors until well beyond agreed payment terms.

For further information contact:

MHP Communications

Katie Hunt / Jade Neal / Giles Robinson / Renny Popoola / Jennifer Iveson

Tel: 0203 128 8100

Email: Begbiescorporate@mhpc.com

Notes to editors:

About Begbies Traynor Group

Begbies Traynor Group plc is a specialist professional services consultancy providing independent professional advice and solutions to businesses, financial institutions, the accountancy and legal professions and individuals in the areas of recovery, corporate finance, investigations and risk management. It is listed on AIM (Ticker: BEG). Further information can be found at: www.begbies-traynorgroup.com.

About Red Flag Alert

Red Flag Alert measures corporate distress signals through a comprehensive and complex methodology, drawing on factual legal and financial data from a wide range of relevant sources for companies that have been trading for over a year.

The release refers to the numbers of companies experiencing 'Critical' problems which are those with CCJs totalling over £5,000 within a three month period or winding-up petitions against them or which have entered Corporate Voluntary Arrangements.

The release also refers to the numbers of companies experiencing 'Significant' problems, which are those with minor CCJs (of less than £5k) filed against them or which have been identified by Red Flag's proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth. 

Red Flag Alert is commercially available to all businesses, on an annual subscription basis, to help them better understand risk and exposure and help prepare them for the future. Further information about Red Flag Alert can be found at: www.redflagalert.com