Sainsbury’s and ASDA merger: reaction

Concern is being expressed over the proposed merger between ASDA and Sainsbury’s and the impact it may have on primary producers.

Sainsbury’s confirmed plans on Monday morning for the merger that would create a new UK grocery giant with a share of around one-third of the UK market and combined revenues of £51 billion in 2017. Asda’s current owner Walmart would remain as a strategic partner, retaining a 42% stake in the newly-merged company.

Both the Sainsbury’s and Asda brands would be maintained, with a ‘complementary network’ of more than 2,800 Sainsbury’s, Asda and Argos stores and a combined 47 million customer transactions per week.

Sainsbury’s said the move would enable investment in areas that will benefit customers the most, including price, quality, range and creating more flexible ways to shop. It expects to lower prices by around 10% on ‘many of the products customers buy regularly’.

Sainsbury’s chief executive Mike Coupe, who will lead the new combined group, said he believed the two supermarkets were ‘the best possible fit’. “It will enable us to bring prices down, to improve quality, to improve ranges and to bring the power of Walmart in the form of buying of general merchandise and in the form of their systems and investments to the UK,” he told the BBC.

NPA chairman Richard Lister said: “These plans are of real concern to the UK pigmeat sector. History shows that concentrations of power in the retail rarely ends well for primary producers and, as buying power moves into fewer hands, farmers and food producers face the prospect of less competition for the products they sell and, inevitably, an even tougher trading environment. “We will need to see more detail on how this will affect suppliers, but our initial response is that this merger would raise some serious competition issues.”

NFU Scotland chief executive Scott Walker said: “If allowed to proceed, this merger will concentrate a lot of retailer power into the hands of one company.

“In a statement from the retailers on the merger, it was made clear that a primary objective will be to lower prices by “around 10 per cent on many of the products customers buy regularly”.  That will set alarm bells ringing, not just for primary producers, but for other parts of the supply chain as well.

“If the merger goes ahead, there is an opportunity here for potentially the biggest player in the UK’s retail sector to put in place a system of responsible sourcing and to end the spectre of Unfair Trading Practices (UTPs) by supermarkets that blights the sector by delivering a fair share of risk and reward all the way back to the farm gate.

“If it goes ahead, then farmers and shoppers will also want to see the strongest commitment from the new retailer to sourcing more Scottish and UK produced food than they currently do.  NFU Scotland’s Shelfwatch work in 2017 and 2018, where secret shoppers looked at supermarket offerings of lamb, pork and bacon, showed that both Asda and Sainsbury’s could be doing much more to support the nation’s primary producers.”

James Brown, the head of the Retail & Consumer Goods practice at pricing specialists Simon-Kucher who advises numerous supermarket suppliers said:  “Sainsbury’s and Asda have huge buying power that already provides them with rock bottom supplier prices. Where do grocery manufacturers and farmer go from there when the merger gives them a larger combined market share?  The prospect of this merger will send a huge chill up and down the whole supermarket supply chain, while their current suppliers will be braced for demands for further price cuts that many will not be able to deliver.

 

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About The Author

Deputy editor of Agronomist and Arable Farmer as well as responsibility for the Agronomist and Arable Farmer and Farm Business websites. After 17 years milking cows on the family farm John started writing about agriculture in 1998 and has since written for a variety of publications and has developed a wide circle of contacts within the industry. When not working John is a season ticket holder at Stoke City and also of late has become a fitness freak, listing cycling, swimming and walking as his exercises of choice.