Essential reading for retailers and suppliers in the home improvement market

Suppliers could be squeezed by Asda Sainsbury’s merger

Published: 30 April 2018 - Fiona Garcia
The merger is expected to result in a network of 2,800 Sainsbury
The merger is expected to result in a network of 2,800 Sainsbury's, Argos and Asda outlets, with Argos counters put into Asda supermarkets

The Forum of Private Business (FPB) has called on Sainsbury’s to provide assurances to its supply chain, as the supermarket chain  announces it has agreed terms with Asda to merge the two companies.

The grocer says the deal will “create a dynamic new player in UK retail” and Sainsbury’s has promised to deliver savings to customers, slashing prices on some goods by as much as 10%. However, the FPB is concerned by comments made by Sainsbury’s CEO Mike Coupe this morning, referring to the new larger supermarket being able to achieve better discounts from suppliers.
Mr Coupe said the merger would deliver at least £500million in cost savings, largely as a result of improved efficiency and better buying benefits. Expanding the Argos network by introducing counters in Asda stores is expected to result in around £75million of those benefits.

Reacting to the comments, FPB managing director Ian Cass said: “We’re very concerned that the new, larger business could use its position to further squeeze the small businesses in their supply chain, who are already working on tight margins.”
The Forum says it is basing its concern on previous experience of large retail groups imposing discounts on their smaller suppliers, often with little notice and a ‘take it or leave it’ attitude towards these smaller firms.

The Competition and Markets Authority has said that the planned merger is “likely to be subject to review” but, if allowed to go ahead, the deal will create one of the UK’s leading grocery, general merchandise and clothing retail groups, with combined revenues of around £51billion for 2017. There are no plans to close any stores in the Asda or Sainsbury’s portfolio and both retail businesses will be maintained, resulting in a network of more than 2,800 Sainsbury's, Asda and Argos stores.

The FPB’s Ian Cass added: “While the merger would provide a strong retailer with the ability to compete with Tesco, we are concerned that the two new retail giants would effectively cover over 50% of the market, which could potentially have a hugely detrimental impact on smaller businesses.”

Source: FPB and Sainsbury's

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