Food and drink manufacturers across the UK are suffering the most as the big supermarkets slash prices to compete with each and fight back against the rise of the discounters.

Recovery specialist Begbies Traynor’s latest Red Flag Alert research, which monitors the financial health of UK companies, showed that the UK’s food retailing industry continued to experience rising ‘significant’ financial distress, increasing 66% to 4,696 struggling businesses over the past year.

However, the biggest casualty remains the food and beverage manufacturing industry. Companies in this sector continue to experience ‘significant’ distress, with 1,414 businesses now struggling to make ends meet, compared with 728 at the same stage last year – a jump of 94%.

Begbies Traynor also warned it was the SME food suppliers which were being “flattened” by this new “savage landscape” in the UK retail food industry, as ‘significant’ distress among this group of businesses increased by 120% year on year, from 574 SMEs to 1,267.

While most of the UK’s largest supermarkets embark on turnaround strategies in an attempt to claw their way back to financial health, their means of slashing prices and delaying payments was grinding many food suppliers and smaller high street grocers to the ground, the firm warned.

“The four main UK supermarkets continue to cut prices as a core component of their turnaround strategies and with Tesco expected to announce positive progress at its full year results on Wednesday, this price slashing practise seems to be working for them,” Begbies Traynor partner Julie Palmer said. “However, these mass price reductions have severe consequences for less established food retailers and suppliers, particularly SMEs, who now seem to be locked in a David and Goliath-style battle. Although, this time it appears David can’t win.

“With £1 deals for fresh produce goods such as bread and milk remaining a firm feature at the major supermarkets, it’s no wonder that suppliers lower down the food chain are struggling to achieve a fair price for their produce.”

She added the future looked even bleaker for small UK food suppliers as German discounters Aldi and Lidl are predicted to capture 20% of UK market share.

“As the majority of Aldi and Lidl’s packaged stock comes from overseas, struggling UK suppliers could find themselves squeezed even further, if not stamped out altogether,” Palmer said.