Food and Drink Manufacture during Supermarket Price Wars

Reducing the Impact of Lower Price Demands

As price wars among UK supermarkets continue, many of the small and medium sized food and drink businesses that supply them are struggling. So what can these suppliers do?low prices supermarket price wars

In recent years, the habits of UK shoppers have changed. Rather than a weekly outing to pick up the bulk of the family shopping, more people are visiting smaller, local shops, and visiting more often. They’re also switching to the no-frills discount stores. These changes in shopping habits have affected the trade of the ‘big four’ UK supermarkets (the four retailers which have just over 71% of the total UK grocery market). For example, in the first half of its financial year in 2015, UK giant Tesco saw its operating profit reduce by half. So, Tesco, along with Morrisons, Sainsbury’s and Asda have been taking assertive action in response to reduced profits.

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To counteract falling sales and win back customers, the big four have been lowering prices.  As a consequence, many of their suppliers are suffering. And it’s their small and medium sized suppliers that are suffering the most.

Improving Operational Efficiency

Tesco is aiming to turn its losses around by improving its operations, rather than by selling assets. So as well as lowering prices, supermarkets are reducing the range of products they sell, changing the structure of their offers, and renegotiating contracts with their suppliers.

Pressure on SME Food and Drink Suppliers

The supermarket price reductions are taking their toll on SME food and drink manufacturers. Unlike larger supermarket suppliers, SME’s don’t have strong negotiating power. In addition, some supermarkets are considering directly manufacturing products themselves, putting even more pressure on SME food and drink manufacturers that rely on supermarkets.

The respected Red Flag Alert research for Q2 2015  from Corporate Rescue and Recovery practice Begbies Traynor reports that UK Food and Beverage Manufacturers witnessed the biggest  year on year increase in ‘Significant’ distress of all the sectors they monitor. The sector saw an increase of 54% compared with last year.

Product Recovery During Processing

So, if food and beverage manufacturers have negotiated as much as possible, and rely on supplying supermarkets, how can they cope with lower pricing demands? It’s tough. However, for those that process liquids, hygienic pigging systems can significantly increase product yields and reduce wastage.

As specialists in liquid product recovery for food and drink producers, HPS delivers solutions that recover residual product in pipelines. There’s nothing wrong with this product, but without pigging, it would otherwise be discarded or flushed away in the CIP process. This is often a significant amount of waste, and hence money. And the more expensive the product or more intense the process, the more there is to gain.  In addition, HPS systems also speed up changeovers, reduce the risks of cross-contaminations, as well as reducing water, energy and waste disposal costs. As a result, pigging and product recovery solutions delivered by HPS typically pay for themselves within a few months.

The Future

But what about the future of supermarkets? The big four aren’t going anywhere just yet. Their market share is just too large (the largest, Tesco’s currently has around 28%).  However, they will continue to adapt to the new market conditions. Some of their actions could put even more pressure on suppliers. Meanwhile the budget supermarkets are continuing to build on highly successful strategies (but unfortunately for UK suppliers, tend to get a lot of their produce from overseas), while the higher end supermarket Waitrose is also making gains.

For food and beverage producers, especially SME’s, it’s difficult times. While there are a number of choices to make, increasing processing efficiency using a proven, reliable technique with rapid ROI such as pigging should be certainly be up for discussion.

Click Here to Download our FREE guide to Hygienic Pigging for Food and Beverage Companies >>

HPS has thousands of customers throughout the world, including well-known names such as Coca-Cola, Britvic, Kraft, Heinz, Nestle, Unilever, P & G as well as many smaller organisations. So, for help or advice on improving efficiency through product recovery solutions, please contact HPS.