A group of insolvency specialists at the Begbies Traynor Group have submitted a report that highlights the trend among investor habits in investing in food and drink manufacturers, recently, which indicates that as many as 92 percent companies, amounting to 1,410 companies are in severe financial distress during the fourth quarter of 2014 including Tesco PLC.

Time’s not ripe for Tesco for takeover of Majestic Wine and Premier Foods

Time’s not ripe for Tesco for takeover of Majestic Wine and Premier Foods

Reflecting this trend, the percent of food and drinks retailers who are in financial distress has also increased by 58 percent, amounting to 4,552 companies during the same period. The experts have said that this is a consequence of the companies being caught in a supermarket price war.
Because of the slow business in supermarkets like Tesco, food suppliers like Premier Foods are also having a squeezed profit margins and payment terms as they are dependent on supermarkets to determine the volume of their business. It is now said that Premier Foods that is in significant debt will still be in trouble even if it doesn’t get affected by the supermarket price war.
However, the latest management update warned Premier of the plummeting in sales by 5.6 percent in last year and that the trading profit expectations also fell “towards the lower end of market expectations”. Smaller retailers such as Majestic Wine and McColl’s Retail group are also under pressure because supermarket convenience stores have mushroomed everywhere.
Despite the cut made to its gross profit margin by 0.5 percent in order to ensure “pricing remained competitive in this more promotional environment”, Majestic Wine’s store sales in UK has seen a growth of 1.1% during Christmas. We can expect Conviviality Retail’s interim report next week and notably, it also runs off-licences like Bargain Booze.
It’s said that the companies will have a battle to fight in order to survive the blow they have just taken as a result of the several convenience stores that were opened recently.