Asda and Sainsbury’s Merger Could Pile Pressure on Suppliers

Plans to merge the two supermarket giants Asda and Sainsbury’s could result in significant financial pressures being brought to bear on companies within their combined supply chains.

Mike Coupe, chief executive of Sainsbury’s, has said that the merger will enable his company to offer its customers price cuts of 10 per cent on everyday items.

The concern among suppliers and their representative bodies is that efforts to deliver on the promise of sizeable price cuts for consumers will have major knock on effects.

Supermarket supply chains involve thousands of companies and employees across the country and there are concerns in some quarters that significant price cuts at a merged Asda, Sainsbury’s operation will eventually force some businesses into insolvency.

“If suppliers are asked to reduce prices by 10 per cent to stay on the Sainsbury’s-Asda supply chain, then some small companies could go out of business,” Ian Cass from the Forum of Private Business has told the BBC.

Mr Cass expressed the concern that a merged Asda and Sainsbury’s business would become exceptionally powerful within the grocery retailing sector and could pressure suppliers into accepting unfavourable terms as a result.

The Competition and Markets Authority has said that it expects to see the proposed merger of the two supermarket giants referred to its experts for review in due course.

Mike Cherry, national chairman of the Federation of Small Businesses, has called for bosses of Asda and Sainsbury’s to “give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth”.

“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,” he said.

Together, Asda and Sainsbury’s would account for around a 30 per cent share of the UK’s overall grocery retail market and the merged operation would overtake Tesco to become the country’s largest supermarket chain.

There are currently a total of close to 2,800 Asda and Sainsbury’s stores throughout the UK and the two businesses collectively employ in the region of 330,000 people nationwide.