The Sainsbury’s-Asda merger goes to the heart of what we can expect from post-Brexit Britain
The business world seems to have been taken aback by the revelation of plans for a merger between Sainsbury’s and Asda, despite the proposal being seemingly well-advanced.
If the union proceeds, it appears likely that the separate brands will nonetheless be retained, which is a shame if you were hoping to shop at Assbury.
Plainly the retention of two such household names in the retail sector will ensure continuity of identity for customers – and for in-store staff. It may also be an advance sop to the Competition and Markets Authority (CMA), which is likely to initiate an investigation into a deal that will have a significant impact on the supermarket sector.
As things stand, Sainsbury’s and Asda both have about a 15 per cent share of the UK’s grocery market. Their combined clout will put them ahead of Tesco, which has been pre-eminent for years and currently has a market share of nearly 28 per cent.
Mike Coupe, chief executive of Sainsbury’s, is the man who will lead the merger. Amid scepticism about the likelihood of staffing cuts and the possibility that less competition in the sector could actually push prices up, Coupe has been sounding positive notes. No stores will close, he says, and no in-store staff will lose their jobs (which must be reassuring to those working in the accounts department). What’s more, prices will actually come down, he contends, “by around 10 per cent on many products”.
In short, the all-important customer will benefit. Nothing for the CMA to see here.
Unions, of course, will have something to say about that, as they go into bat for employees at risk of redundancy. There will also be considerable anxiety among supermarkets suppliers, many of whom have already been squeezed by the buying power of a dominant Big Four (Morrisons being the fourth).
It is less than a year since Asda was identified by the Groceries Code Adjudicator (GCA) as the worst major UK supermarket insofar as its treatment of suppliers was concerned. In September, the company repaid hundreds of thousands of pounds that it had demanded up front from suppliers in return for agreeing to stock products, after the GCA’s criticism.
A year before, Tesco had been on the sharp end of a GCA report after it found the firm had knowingly delayed payments to suppliers. Morrisons came under fire in 2016 too.
Sainsbury’s has built a stronger reputation, which may bode well in the merger talks. The other firms all say they are improving supplier relationships after those recent hiccups, which may suggest that the introduction of the GCA as an independent – but government-backed – regulator in 2013 has been effective.
Given that research last year by accountancy firm Moore Stephens found that 150 suppliers were forced to close in 2016 as a result of “predatory practices” by supermarkets, it is clear that further improvements are essential.
In this context the Sainsbury’s-Asda merger could, then, provide an opportunity. Certainly it will be so heavily scrutinised that there is a hefty imperative for management to show that it can develop relationships with suppliers that are symbiotic rather than confrontational.
Indeed, the treatment of food suppliers goes beyond questions about the present corporate cause célèbre. It even goes beyond the ethical requirement per se of supermarkets to behave responsibly. Rather, it goes to the heart – or at least could go to the heart – of what kind of Britain we are going to get post-Brexit.
After all, even allowing for the ongoing uncertainty over the withdrawal process (and the faint possibility of the UK not departing), it is surely time that we began to consider how we can resolve the identity crisis that has beset Britain in the last two years. For that to happen, both sides of the debate need to consider what a UK outside the European Union will look like.
In that future, agriculture, food and corporate fairness are all potentially important components, drawing on a historic strength, a present obsession and a sense of fair play that underpins many people’s idea of Britishness (and could do with a reboot).
Sainsbury’s and Asda, as two of this country’s best known and biggest brands, should consider their future with this backdrop in mind, not simply in the context of efficiencies, market share, share price and profit.
If they don’t, perhaps our future is with Europe after all – if Lidl and Aldi have anything to do with it.