According to Dominic Jephcott, managing partner at retail management consultancy Vendigital, the announcement from Sainsbury’s and Asda has taken the retail sector by surprise and is likely to worry many smaller supermarket suppliers.
Jephcott added: “For suppliers of food and household goods, today’s announcement will be cause for concern, particularly as the Tesco-Booker merger secured CMA approval in March and significant supply chain disruption is now inevitable.
“In addition, Sainsbury’s and Asda will need to remember to focus on product and their value proposition to core customers, at the same time as leveraging scale.”
Sainsbury’s confirmed on 30 April that the two supermarkets plan to merge in a £12m deal, but the agreement is still likely to be the subject of a review from the Competition and Markets Authority (CMA).
The CMA confirmed that in major mergers of this size, the companies in question typically engage in ‘pre-notification’ talks with the competition body to ensure they’re supplying all required information before a more formal investigation into the merger can take place.
These pre-notification talks can last for several weeks, followed by the CMA’s formal investigation, ‘Phase 1’ of which can last for up to 40 working days. During this period, the CMA assesses whether the merger could reduce competition and choice for shoppers.
Both Sainsbury’s and Asda have said that any money saved as a result of the merger can be converted into lower prices for customers on everyday items. Sainsbury’s is aiming to reduce costs by £500m a year, claiming it can do so without cutting jobs or stores.
“Despite the climate of consolidation in the supermarket sector, this announcement by Sainsbury’s and Asda has taken the market by surprise,” Jephcott went on to say.
“Bold strategies to transform the operating structure of the combined business and review its cost base are now necessary if the leading players want to increase market share and win customers back from the fast-growing discount chains.”
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