Trade bodies, investment firms and political parties have been giving their initial reactions to Sainsbury’s shock merger with Asda.
The combined business will have revenue of £51 billion, putting it on level footing with the UK’s largest grocery retailer, Tesco, which also turned over £51 billion in its last financial year.
Sainsbury’s said it will cut prices by 10% under the merger and both companies have stressed there will be no store closures, despite the close proximity of some shops.
Meanwhile, the UK’s Competition and Markets Authority said that the deal is “likely to be subject to a review” amid concerns over consumer choice.
Here we round the key points from some of the UK retail industry’s leading thinkers about how the deal will transform the country’s grocery landscape.
James Lowman Association of Convenience Stores
“Convenience retailers will be thinking about the knock-on effect of a Sainsbury’s/ASDA merger on their businesses and on this sector. What will be the strategy for the Sainsbury’s Local convenience stores, and will the combined business look to engage with independents through a wholesale or franchise model – something Sainsbury’s has looked at in recent months? What will happen to buying power in the grocery market, and how will this impact on suppliers and on smaller retailers and wholesalers? What will be the implications for the fuel retailing market from these two large fuel retailers coming together?
“The Competition and Markets Authority will look at this merger and needs to consider these questions as part of that inquiry. Consumers win when there is vibrant competition and choice, and people increasingly fulfil their shopping needs through a variety of large and small stores, on line shopping and eating out of the home. The CMA needs to think carefully about these changing shopping behaviours and consider the full implications of this deal.”
“A merger of this size will concentrate a lot of power in the hands of one giant company, and 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.
“When investigating this proposed merger, the Competition and Markets Authority should be looking for cast-iron commitments that a positive standard will be set for working with smaller suppliers.”
Mike Cherry Federation of Small Businesses
James Brown Pricing specialist Simon-Kucher
“Sainsbury’s and Asda have huge buying power that already provides them with rock bottom supplier prices. Where do grocery manufacturers and farmers 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.
“Could this merger lead to reduced prices for shoppers? A few maybe. Cost and operating synergies could allow more room to invest in lower prices, but lower prices from better deals from suppliers in the mid and long term? Unlikely. Asda and Sainsbury’s shift huge volumes and already attract low pricing. They won’t sell any more product over all, so it’s not as though there are real volume benefits for suppliers.”
“Consolidation is a common feature of mature industries which are undergoing disruptive threats – in food retail’s case this includes online shopping and discount retailers.
“We expected more to follow the approval of the Tesco Booker deal, especially seeing comments from industry figures such as Asda’s former boss, Andy Clarke, who said it was “open season” for further deals in the sector.
“As a Tesco shareholder we think a successful merger between Sainsbury’s and Asda will create short term opportunities and longer term stability and rationality, adding value to the Tesco value proposition.”
Freddie Lait Latitude Investment Management
“It remains to be seen if this ‘supermarket sweepstake’ is the real deal or a bargain basement ready meal.
“Hundreds of thousands of workers stand to be affected, and all know such announcements tend to be followed by management speak like ‘rationalisation’ in the name of ‘efficiency’. What that usually means is job losses or cuts to pay, terms and conditions which would be wholly unacceptable. Not least because Asda workers have already voluntarily agreed to change their contracts to be more flexible in order to play their part and help their employer be more profitable.
“It is quite right to be asking now in whose interests this proposed merger is being tabled. Is it workers and customers or the shareholders and speculators not happy with the hundreds of millions they already make in a year?
“The events of the last few days have left a bitter taste in the mouth of Asda workers. ”
Tim Roache, GMB union general secretary
Rebecca Long-Bailey MP Labour shadow business secretary
“There are risks to jobs by potential reorganisation and store closures and risks to the wider grocery industry as a Tesco/Sainsbury’s-Asda duopoly emerges with unrivalled power to dominate, dictating choice and prices for consumers which in time may prove detrimental.
“This unrivalled power also poses immense risk to suppliers with unprecedented bargaining power to drive suppliers’ prices and payment terms down which could cause instability and damage to the food and grocery manufacturing industry.
“We need an urgent investigation by the CMA and concrete assurances from both supermarkets on how these risks will be avoided.”
“In terms of Sainsbury’s merger with Asda, it is a great pity that the management of two big corporations cannot come up with a better and more constructive idea than a merger. In my view, putting two low-growth businesses together doesn’t create a high-growth business.
“The phrase ‘no store closures as a result of this merger’ ultimately treats us as fools. This is a cost play which will impact jobs in warehousing, distribution, stores, headquarters and suppliers. That said, combining Argos with Asda General Merchandise could be one possible source of growth.”
John Maltman E-commerce analytics platform E Fundamentals
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