Food retail begins recovery but living wage lies ahead
The UK grocery sector is seeing its first "green shoots of recovery" after a price squeeze that has lasted for over two years, according to a report.
Food retailing firms experiencing "significant" financial distress fell by 5% to 5,002 companies over the last three months, figures from the Begbies Traynor Red Flag Alert for the third quarter of this year showed. This was the first decline since the second quarter of 2013.
The sector has been gripped in a supermarket price war characterised by falling prices as major players battle to retain market share, in the face of competition from discounters such as Aldi and Lidl. The report by business recovery specialists Begbies added that food and drink manufacturers also saw their first decline of firms in "significant" financial distress in over two years. The number fell by 4% to 1,553 companies during the past quarter.
However, the report said these early signs of recovery will be tested by the introduction of the national living wage which, from next April, will lift hourly minimum pay to £7.20 for over 25s, from its current level of £6.50, and to at least £9 an hour by 2020.
The data covers firms in trouble with debt or showing other signs of poor financial health.
Julie Palmer, partner and retail expert at Begbies Traynor, said: "Whilst the UK grocery sector is not out of the woods yet, our latest quarterly findings indicate that it is seeing the first green shoots of recovery.
"After a protracted period of job cuts, price readjustments and forced efficiency improvements, businesses across the sector now appear to be better equipped for the new normal of a low margin landscape."
However, times remain tough for the grocery sector.
The report found that since the second quarter of 2013, the number of grocery suppliers in "significant" financial distress has increased by 147%, from 628 businesses.
Over the same time, the number of grocery retailers in "significant" financial distress has increased by 106% from 2,428 firms.