Supermarkets were the focal point of the news in May. ASDA and Sainsbury’s – two of the UK’s biggest retailers – decided to merge. Other than overtaking Tesco as the UK’s largest supermarket chain, who have only recently announced their purchase of wholesale giant Booker, what exactly will come from the merger? And have these moves caused a ripple effect within retail?
Read on as we discuss the potential benefits and drawbacks of the merger.
Despite suggestions of a whole new supermarket brand, the merging parties have insisted that Sainsbury’s and ASDAwill remain as separate brands. Instead, they have agreed to create a combined business that manages both brands and allows them to sharpen their existing customer propositions.
Walmart – the original owners of ASDA – will hold 42% shares in the combined business initially, reducing to less than 29.9% when the merger is complete. According to Kantar Worldpanel, the combined business will hold a market share of 31.4%. That takes them just above Tesco who hold 27.6%.
As for the ‘why’; Sainsbury’s have highlighted a rapidly changing retail sector. More competition for groceries, clothing and general merchandise requires more resilience from businesses to lower prices, improve range and maintain quality. The big four supermarkets have always struggled to compete against the low prices of discounters Aldi and Lidl, and the threat from the new Tesco-Booker deal has further highlighted the need to shake up the operation. They also allude to the pressure of using different channels of retail, with the need to deliver products through multiple channels quickly and effectively becoming a focus for them.
Combining businesses – cutting prices?
Naturally, the first reaction for consumers across the UK was to wonder how it could affect them. It didn’t take long for those involved in the merger to insist the benefits for their customers. In an online update, Sainsbury’s stated their expectation to lower prices by 10% on “many of the products customers buy regularly”.
In their update, they also highlighted that no store closures for either Sainsbury’s or ASDA are planned. However, the merger is still subject to approval from the Competition and Markets Authority (CMA). To avoid creating local monopolies, the combined business may actually be forced to sell off stores in some areas. We could see at least 6% of the combined group’s supermarkets, which would be around 73 stores, shut down . If the CMA takes a harder stance on the competition over 245 could be shut down over the next few years. The majority of these stores in the South East, it means that hundreds of retail staff will also be losing their jobs, despite initial promises.
Effect on the supply chain
Unfortunately, store closures aren’t the only part of the deal threatening job losses. Findings from the New Economics Foundation (NEF) suggest that up to 2,500 jobs could be lost across the supply chain. This is based on claims that lower consumer prices will be met by negotiating lower prices with suppliers. A 5% cut in output for suppliers could lead to a loss of more than 1,200 jobs, they found, while a 10% price cut could hit over 2,500 workers.
Ultimately, the pressure on suppliers will come. Pricing structures will need to be revisited, and terms will need to be reviewed. With huge potential cost savings, the group will be expected to bargain hard with their current suppliers to get the best deals, but they need to be careful that they are not going to be milking the smaller suppliers for all they are worth. Lower prices and fewer market options are not what small providers and farmers need with the uncertainties of Brexit.
Alfie Stirling, NEF’s Head of Economics, said:
“We are likely to see a classic case of monopoly like power in a market where things are already heavily stacked towards the ‘big guys’. This is part of a broader picture, where time and again UK capitalism shows itself to be geared against small business in a way rarely seen in the rest of Western Europe.”
By amalgamating parts of their supply chains, the two supermarket giants are aiming to become more agile and a lot more lean in their processes. However, this benefit to the top end of the company could be at the expense of the people who make up their workforce.
Looking to the future
The Asda-Sainsbury’s shake up is causing a lot of uncertainty for consumers, competitors and staff at the stores and beyond. Fortunately, any big changes are likely to be delayed until 2019 awaiting a decision from the Competition and Markets Authority.
Whilst this is happening, there have been murmurs of a number of future mergers on the horizon, with eCommerce giant Amazon entering the grocery space and looking to exert its dominance. Could they make a play for Morrisons? Ocado have also been hitting the news throughout May with their ‘transformative partnership’ with US based supermarket Kroger and Swedish grocery store ICA.
Talk to the recruitment experts
Bis Henderson Recruitment have worked with many major retailers when shaking up their supply chains and understand that staff are often put on the back burner when change is afoot.
Our team can support businesses with their recruitment needs, whether it’s a large-scale project with a major retailer or smaller requirement on a smaller level. But we’re also able to help those individuals affected by business restructuring, welcoming conversations from anyone looking for their next role in supply chain and logistics.
Whichever position you find yourself in, we’re here to support you on your journey. Speak to our team today to get the ball rolling.