There are fears that suppliers will shoulder the cost of Sainsbury’s multi-billion-pound merger with Asda, with the two British retailers having promised net synergies of at least £500 million.
The deal, announced a week ago, will create a combined business with revenues of around £51 billion – equivalent to the UK’s current largest supermarket, Tesco.
But the size of the proposed merger has prompted scrutiny from UK politicians, and the transaction is now expected to face close investigation from the country’s antitrust authority, the Competitions & Markets Authority (CMA).
Now David Gurr, global channel manager for data insights company InfinityQS, has questioned what impact combining Sainsbury’s and Asda will have on suppliers. The UK’s grocery sector has already come under intense criticism for its trading practices, with the Groceries Code Adjudicator (GCA) finding in 2015 that Tesco “knowingly delayed paying money to suppliers in order to improve its own financial position”.
Gurr says that the companies’ own statements regarding the merger, promising heavy cost synergies and greater ‘buying power’, show that the businesses are ready to squeeze its suppliers further. He also casts doubt on the assertion from Sainsbury’s CEO Mike Coupe that there will be no store closures when the two companies are combined.
“Both companies are already placed within the top three based on market share and the merger will affect all areas of the UK grocery and FMCG supply chain as retailers are forced to adjust their pricing to remain competitive,” he tells FoodBev.
In some parts of the UK, particularly in London, Sainsbury’s and Asda stores operate within less than 100 metres from each other. Political commentators have suggested that a combined business wouldn’t find sense in operating both stores – or, at least, not without setting neighbouring stores apart from each other through differentiated homewares and grocery offerings, for instance.
In some locations, Sainsbury’s and Asda stores look unfeasibly close – despite reassurances. © Google
Gurr says that, regardless of how Sainsbury’s and Asda benefit from their merger, suppliers will need to face down fresh pressure.
“With rising production and import costs, suppliers are being squeezed from both ends and it will be imperative they ensure their industrial processes are streamlined and operating at full efficiency.
“There is great potential for cost saving throughout the FMCG manufacturing sector – for example, according to the Waste and Resources Action Program (WRAP), UK manufacturing accounts for approximately £1.2 billion of preventable food wastage, which equates to nearly 1 million tonnes of food, and there are a variety of technologies and strategic decisions that can be deployed to ensure the reduction of excess material and improved sustainability.
“One of the most effective ways for suppliers to retain a healthy profit margin is by optimising their manufacturing processes to maximise efficiency by implementing manufacturing intelligence solutions that automatically identify areas of inefficiency. In addition to making substantial cost savings and enhancing operational effectiveness, implementing cloud-based data monitoring and analytics technology gives manufacturers full visibility into each stage of their manufacturing process and supply chain. This enables operators to easily gather valuable process data that can be compared and contrasted in real-time across multiple lines, factories and regions to instantly identify bottlenecks and areas of improvement.
“Once inefficiencies have been identified, manufacturers and suppliers can adapt their operational approach, make substantial cost savings through reduced CAPEX and OPEX and regain their competitive edge. Together, these approaches can help offset any downward pressure on margins resulting from this merger.”
© FoodBev Media Ltd 2018