Sainsbury’s-Asda: someone must pay for price cuts

Someone will have to pay for the price cuts promised as a result of a merger between Sainsbury’s and Asda, the Chartered Institute of Procurement & Supply has warned.

The House of Commons committee on Environment, Food and Rural Affairs, is examining the impact of a merger. The two retailers reckon that the deal would allow them to cut prices by about ten per cent on many regularly bought items.

Committee chair Neil Parish MP said: “Grocery retailers do not have a great record of treating their suppliers well, and some of them are cautious about the proposed Sainsbury’s and Asda merger. My committee is holding this session to investigate how the biggest potential shake-up of the grocery market in recent years could affect British farmers and suppliers, as well as consumers.”

CIPS group director Duncan Brock said: “Sainsbury’s and Asda have promised to cut prices for consumers, but somewhere along the line someone will pay. Many UK suppliers are running their business on fine margins, exchange rate volatility has already led to public spats between suppliers and the big supermarkets because of higher import costs.

“With so much of the UK’s food supply chain dependent on one customer, it will be more important than ever to ensure suppliers are paid fairly and supported in difficult times.”

He argued that if the merger were approved, it was crucial that procurement teams took the opportunity to strengthen relationships and adopt a more transparent and supportive approach so the pool of suppliers remains diverse.

“By reducing the number of trucks on the road and creating a more efficient system of warehouses, the new business has the potential to lower its carbon footprint and reduce costs. Brexit poses a significant challenge, however, and these savings will need to be put to good use creating a supply chain that can adapt to uncertain customs arrangements, tariffs and continued currency instability. Reliability and quality will be just as important as price.”

Both Sainsbury’s chief Mike Coupe and Asda chief Roger Burnley were due to give evidence to the committee on Wednesday (20th June).