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North East recovery slows as supermarket price wars intensify

The last three months of the year saw the North East struggling to maintain its economic recovery with levels of significant business distress in the region growing quarter on quarter by 3 per cent compared with a fall of 5 per cent across the UK as a whole, according to new data released today (16 January) by leading business rescue and recovery specialist Begbies Traynor.

Begbies Traynor’s Red Flag Alert research for Q4 2014, which monitors the financial health of UK companies, reveals that the UK’s food retailing industry experienced one of the sharpest increases in ‘significant’ financial distress of all sectors monitored, rising 58 per cent year on year, and this trend was reflected in the North East which saw a 52 per cent increase in food and drug retailing compared to the same quarter last year.

Meanwhile the worst performing sector was the UK’s food and beverage manufacturing industry. Companies in this sector, many of which supply the major UK headquartered supermarkets, witnessed a colossal 92 per cent increase in significant distress with the picture even starker in the North East which saw a 138 per cent rise year on year.

The statistics show that the UK’s SME food retailers and suppliers have been the worst casualties so far of the enduring price war between the UK’s supermarket giants, which have been slashing prices, while squeezing suppliers’ margins and elongating payment terms in a bid to offer consumers the lowest prices available in today’s competitive retail environment.

Andy Haslam, partner of Begbies Traynor in the North East, commented: “While most of the UK’s largest supermarkets reported stronger than expected food sales over the festive period, their ongoing and brutal price war is pushing many food suppliers and smaller high street grocers to the brink. With shocking increases in distress among the supermarkets’ main suppliers, the largest chains need to tread very carefully if they want to prevent a new crisis creeping up through their supply chain.”

The research also showed a marked north south divide in terms of economic prosperity since the previous quarter. While levels of significant distress fell fastest in the South West (13 per cent), Wales (11 per cent) and London (10 per cent), in Northern Ireland there was hike of 26 per cent in the same period, Yorkshire and the Humber along with the North East experienced a 3% increase and there was a 1% rise in the North West.

Looking at the year on year figures, the North East saw a 2 per cent increase in significant distress, in line with a 2 per cent rise across the rest of the country. Across the UK, there were 229,232 instances of significant financial problems in the last quarter of 2014 and just 5,336 of these were based in the North East.

In terms of instances of the more severe ‘critical’ distress, the region showed a more encouraging picture with a quarter on quarter fall of 31 per cent compared with a fall of just 9 per cent fall across the UK; and a 33 per cent fall year on year in the region compared with a 19 per cent fall nationally.

Mr Haslam continues: “After a relatively strong year for the North East economy, it is disappointing to see levels of distress starting to creep back up in the final quarter, particularly as there once again seems to be a geographic divide with the north appearing to be faring worse than other parts of the UK.

“The relative fortunes of the different sectors of the economy are also growing wider apart, and, unfortunately, some of the key sectors such as general retail and construction, which are known drivers for economic prosperity, are seeing rising distress.

“While retailing is still tough everywhere, it is encouraging to see that some consumer-facing sectors in the region such as leisure, hotels and hospitality are experiencing falling levels of significant distress and are outperforming many other parts of the UK,” he added.

Across the sectors, leisure in the North East continued to show positive signs with a year on year fall in significant distress of 34 per cent. Bars and restaurants also saw a 6 per cent decrease which was matched by hotels; and an 11 per cent fall in travel and tourism. However, general retail, with a 37% increase in the region, experienced one of the largest rises in significant distress since last year, along with construction at 47 per cent. Both reflected national trends with significant distress in retail in all regions going up by 36 per cent year on year and construction by 41 per cent.

Mr Haslam adds: “With the uncertainty of a General Election this year, together with concern about the likelihood of interest rate rises, we may well see the UK economy slowing in 2015. The key will be for businesses to remain cautious and not to over extend themselves.”

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