Suppliers have avoided a fate worse than a no-deal Brexit if the CMA’s provisional findings kill off the Sainsbury’s-Asda merger, say leading supplier sources.
There was widespread celebration over this week’s verdict, despite the competition watchdog dismissing concerns raised over the impact on suppliers.
According to an FDF poll revealed by The Grocer in December, more than 90% of suppliers feared a merger between Asda and Sainsbury’s would have a negative impact on their prices or trading terms. The poll said most suppliers were too scared to speak up because of the ‘climate of fear’ surrounding the deal.
Sainsbury’s and Asda had claimed the merger was an opportunity for growth for suppliers across the combined business, with Sainsbury’s CEO Mike Coupe highlighting new opportunities for small-scale British suppliers.
However, there had been fears of a squeeze on suppliers, with the merger setting out plans to generate £350m of savings, chiefly from “harmonised buying terms”.
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Despite Coupe stating that 100 multinational suppliers accounted for 85% of Sainsbury’s businesses and that this would be the focus of cost-saving negotiations, there were widespread fears smaller suppliers would also be hit by the increased buyer power of the merged entity. Suppliers claimed it would reduce their ability to invest and innovate.
The CMA investigation also heard concerns the impact of the deal may force suppliers to raise prices to more than 20 other retailers, in a so-called “waterbed effect” to make up for slashing their prices for Sainsbury’s and Asda.
However, according to the provisional findings there was “insufficient evidence” to back such fears.
“Ultimately most suppliers are not going to care about why the CMA doesn’t want to let this deal go ahead as long as they throw it out,” said one source.
“The fact is 2019 was threatening to be one almighty car crash for suppliers, with the threat of a no deal and the prospect of a huge squeeze from Asda and Sainsbury’s. They will be relieved that the merger looks dead in the water.”
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Another supplier source said: “For many suppliers the threat of Sasda is exponentially worse than Brexit. Hopefully today’s findings mean that threat will not be hanging over them for long.”
However, MPs criticised the findings for failing to reflect the concerns of suppliers.
Neil Parish, chair of the Environment, Food & Rural Affairs Committee, said: “While I commend the CMA’s thorough investigation into the merger, I’m disappointed the report was unable to reflect the impact this merger could have on businesses in the food supply chain, other than how it would affect competition at a customer level.
“We know that businesses working in the food industry already face intense pressure due to the uncertainty of Brexit and planning for a no-deal scenario. The Efra Committee will be watching the next steps of this investigation closely.”
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