Suppliers warn over retail giant merger
● Sainsbury’s and Asda plan £12bn deal ● Producers warn against poor pay
Scottish suppliers have said that the proposed merger between Sainsbury’s and Asda has “set alarm bells ringing”.
Producers have warned that the tie-up, which the supermarkets say would slash prices by up to 10 per cent, should not result in poorer deals.
The proposed £12 billion merger between two of Britain’s leading supermarket chains has set “alarm bells” ringing among Scottish suppliers, amid fears farmers and small producers will bear the brunt.
Sainsbury’s and Asda yesterday confirmed they are in advanced talks to combine their businesses, a move which would create a firm with a bigger market share than Tesco, the longstanding market leader in the supermarket industry.
The companies claim the move will allow them to slash the prices of everyday products by up to 10 per cent, but the proposal has sparked warning from producers that they will not settle for poorer deals.
Amid concerns over a lack of competition, the Federation of Small Businesses (FSB) cautioned that suppliers must not be coerced into accepting “unfair contracts or poor payment terms”.
It comes as the supermarket giants backpedalled on claims no stores would close as a result of the shock merger, admitting that regulators could force them to offload outlets as part of an inquiry into the deal.
Should the Competition and Markets Authority (CMA) grant approval, the new firm would have combined revenues of £51bn and boast a network of 2,800 Sainsbury’s, Asda and Argos stores across the UK.
Asda , one of Scotland’s biggest private employers, has 63 stores north of the Border, while Sainsbury’s has 100 food outlets – 65 convenience stores and 35 supermarkets.
While they employ tens of thousands of people in Scot- land, the firms also have an extensive relationship with nearly 200 farmers and small firms.
Colin Borland, the FSB’S head of devolved nations, said that if the merger brought about lower prices, it could boost fragile consumer confidence and, in turn, growth.
But he said it was vital that Sainsbury’s and Asda made explicit how they planned to make savings without impacting on the food and drink sector.
“A merger of this size will also concentrate a lot of power in the hands of one huge player, and it’s important that this isn’t misused to coerce small suppliers into accepting unfair contracts or poor payment terms,” he said.
“Those at the top of Sainsbury’s and Asda should explain how they plan to merge their supply chains fairly, and give reassurance that cost savings won’t be achieved simply by squeezing their small suppliers.”
Scott Walker, chief executive of NFU Scotland, 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.”
Sainsbury’s has estimated a range of stores could be sold as part of its modelling ahead of the deal being ratified.
This estimate, based on possible outcomes from the CMA, investigation, has been to calculate that £500 million in cost savings will be produced by the merger. While an exact number of possible store closures has not been divulged by the chains, research firm Globaldata said at least 75 stores where Sainsbury’s and Asda overlap are at risk.
Bob Deavy, the GMB Scotland organiser, said the union was “inundated” with calls from worried Asda employees in the wake of yesterday’s announcement.
Sainsbury’s chief executive, Mike Coupe, said the merger was a “transformational opportunity to create a new force in UK retail”.
The CMA has said the merger is “likely to be subject to review”, adding that it will assess whether the deal could reduce competition and choice for shoppers.