The merger will reportedly create the UK’s largest grocery firm ©J Sainsbury plc, Asda
The merger will reportedly create the UK’s largest grocery firm ©J Sainsbury plc, Asda

Asda Sainsbury’s merger risks ‘hammering’ suppliers

posted by Francis Churchill
30 April 2018

The Asda Sainsbury’s merger risks “hammering” suppliers, the shadow business secretary has warned.

Rebecca Long-Bailey, shadow secretary of state for business, energy and industrial strategy, said the potential merger would give the new group “immense purchasing power” and the ability to “bargain very harshly with suppliers”.

Speaking on Radio 4’s Today programme, Long-Bailey said: “The power of the big supermarkets has been an issue for many, many years… and this [merger] will create a lot of concern across the industry that supply chains will be hammered by the harsh bargaining powers [of] this newly-created group.”

The Federation of Small Businesses (FSB), has called on Sainsbury’s and Asda to assure cost savings won’t come from “milking” small suppliers.

Asda, a subsidiary of Walmart, and Sainsbury’s announced they had agreed the terms for a merger that would reportedly create the UK’s largest grocery firm with nearly a third of the market. The new company would have combined revenues of more than £57bn and more than 2,800 stores.

The merger also promises savings of at least £500m across the new business, comprised “largely of buying benefits” and operational efficiencies, while cutting costs for consumers. The businesses said both brands would remain operational and that there would be no store closures or job losses as a result.

They added that the merger would “create significant opportunities for suppliers” to expand product range, streamline and grow as the new merger develops.

“Enhanced scale and a strengthened balance sheet will deliver a great deal for customers, colleagues, suppliers and shareholders of both businesses,” they said.

“Bringing Sainsbury’s and Asda together will result in a more competitive and more resilient business that will be better able to invest in price, quality, range and the technology to create more flexible ways for customers to shop.”

However, Long-Bailey said the companies’ promise to protect jobs and keep stores open would mean price cuts would have to come from the supply chain. She has called for an emergency investigation by the UK’s competition watchdog the Competition and Markets Authority (CMA).

Long-Bailey said: “It’s how those prices are driven down. It’s either through efficiencies within the companies themselves, which means either job losses or store closures… or it means using the power with suppliers to drive prices down.”

She also warned this could create “instability in the food manufacturing industry as a whole”.

CMA said in a statement the merger was “likely to be subject to review”.

Mike Cherry, national chairman of the FSB, said the merger would “concentrate a lot of power into the hands of one giant company”.

“It’s important that power isn’t misused to coerce small suppliers into accepting unfair contracts and poor payment terms.

“Those at the top of Sainsbury’s and Asda should explain how they plan to merge these two supply chains fairly, and give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth.”

Minette Batters, president of the National Farmers’ Union, said: “First and foremost the NFU will be seeking to understand what potential impact a merger would have on our members – both those farmers who are directly part of these supply chains and those who could be affected by wider connotations.

“We will be requesting a meeting with Sainsbury’s and Asda to ensure that the commitment of the new business to British sourcing will not be affected,” she added.

SM understands NFU and other stakeholders met with the Department for Environment, Food and Rural Affairs (Defra) to discuss the implications of the merger. Defra has declined to comment.

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