Anne Bruce
The sale of Safeway will produce a "killing ground" of weak brand and private label suppliers who face crippling reductions in margins and the possibility of losing their entire business, former Somerfield chief executive David Simons has warned.
Speaking at The Grocer's What Price Safeway seminar this week, Simons said the deal would mean "an enormous transfer of profitability from manufacturer to acquirer" and "quite a lot of consolidation" in the manufacturing arena.
Large multinational brands such as Procter & Gamble, Nestlé and Coca-Cola would be relatively immune because their pricing was more transparent.
But weak domestic and tertiary brand and own label suppliers would see huge reductions in the price paid for goods as the new business looked to extract more profit.
If a trade buyer bought Safeway, terms for suppliers of both supermarkets would be re-negotiated down to the lower price, and a further volume discount demanded, he said.
"There will not simply be a 1-2% reduction in prices but 5-10%," he said, adding that some private label suppliers could lose their entire business as the acquirer transferred the business to a cheaper supplier.
"You can envisage suppliers losing 30%-40% of their overall turnover in the next six to nine months," he said.
Simons, who is now Littlewoods chairman, said his experience overseeing the Somerfield/Kwik Save merger taught him it was hard to make a merger work after a honeymoon period.
"If this is the last big transaction in food retail, then the one before was Somerfield/ Kwik Save, and for my sins, that was my doing,"he said.
He predicted a trade buyer would see early wins in buying synergies and reduced central costs.
A supermarket buyer would be surprised to discover enormous discrepancies in the prices that suppliers charged different supermarkets, he said.
"We were astounded by the difference in prices between Somerfield and Kwik Save. There was no rhyme nor reason to it."
Simons said buying synergies had added £100m to pre-tax profits in the year after the Somerfield/Kwik Save merger.
Private equity companies Kohlberg Kravis Roberts or Philip Green's Trackdean would have less leverage with suppliers although they would also want to chop prices and strip costs.
He said: "Even the financial buyers will believe they should lower prices Safeway is the most expensive retailer."
Simons added: "We are going to see prices come down and this will have an impact on inflation, and on every household in the land."
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The sale of Safeway will produce a "killing ground" of weak brand and private label suppliers who face crippling reductions in margins and the possibility of losing their entire business, former Somerfield chief executive David Simons has warned.
Speaking at The Grocer's What Price Safeway seminar this week, Simons said the deal would mean "an enormous transfer of profitability from manufacturer to acquirer" and "quite a lot of consolidation" in the manufacturing arena.
Large multinational brands such as Procter & Gamble, Nestlé and Coca-Cola would be relatively immune because their pricing was more transparent.
But weak domestic and tertiary brand and own label suppliers would see huge reductions in the price paid for goods as the new business looked to extract more profit.
If a trade buyer bought Safeway, terms for suppliers of both supermarkets would be re-negotiated down to the lower price, and a further volume discount demanded, he said.
"There will not simply be a 1-2% reduction in prices but 5-10%," he said, adding that some private label suppliers could lose their entire business as the acquirer transferred the business to a cheaper supplier.
"You can envisage suppliers losing 30%-40% of their overall turnover in the next six to nine months," he said.
Simons, who is now Littlewoods chairman, said his experience overseeing the Somerfield/Kwik Save merger taught him it was hard to make a merger work after a honeymoon period.
"If this is the last big transaction in food retail, then the one before was Somerfield/ Kwik Save, and for my sins, that was my doing,"he said.
He predicted a trade buyer would see early wins in buying synergies and reduced central costs.
A supermarket buyer would be surprised to discover enormous discrepancies in the prices that suppliers charged different supermarkets, he said.
"We were astounded by the difference in prices between Somerfield and Kwik Save. There was no rhyme nor reason to it."
Simons said buying synergies had added £100m to pre-tax profits in the year after the Somerfield/Kwik Save merger.
Private equity companies Kohlberg Kravis Roberts or Philip Green's Trackdean would have less leverage with suppliers although they would also want to chop prices and strip costs.
He said: "Even the financial buyers will believe they should lower prices Safeway is the most expensive retailer."
Simons added: "We are going to see prices come down and this will have an impact on inflation, and on every household in the land."
{{NEWS }}
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