Sainsbury's and Asda in political calamities
The CEOs of Sainsbury’s and Asda are set to be grilled by MPs on questions regarding the grocers’ proposed merger, writes Elias Jahshan.
Sainsbury’s chief executive Mike Coupe and Asda chief executive Roger Burnley have been summoned to appear before the Environment, Food and Rural Affairs (EFRA) Committee 20 June.
It’s expected that the interrogation will evolve around the proposed merger’s impact on farmers, suppliers and consumers.
Grocery retailers in England do not have a great record of treating their suppliers well, according to Neil Parish (62), a right-wing member of parliament since 2010. He and other MPs are not at all happy about the proposed Sainsbury’s and Asda merger.
“My committee is holding this session to investigate how the biggest potential shake-up of the grocery market in recent years could affect British farmers and suppliers, as well as consumers,” he says.
Would topple Tesco
If approved by the competition authorities in Great Britain, the merger of the country’s second and third largest supermarkets would topple Tesco’s longstanding reign as the UK’s biggest grocer by market share.
When it was first announced at the end of April, Mike Coupe said the merger would lead to £500 million in cost savings and further investment to lower prices by around 10 per cent on everyday items (www.retailgazette.com).
The Competition and Markets Authority (CMA) has since confirmed that it is looking into the proposed deal, which means it is gathering information from Sainsbury’s and Asda before a formal inquiry could be launched. Fears have been expressed that suppliers could get squeezed – giving the merged entity’s increased buying power.
The deal will, if it goes through, create a supermarket giant rivalling or surpassing Tesco in market share, with 51 billion pounds in sales, 2,800 stores and 330,000 employees.
fear of local monopolies
Neil Parish earlier wrote to the CMA and urged it to consider issues of market dominance, and whether the mega merger would create local monopolies.
“The cost savings being promised through this merger must not come through squeezing those further down the supply chain,” Parish concludes.
“I am also concerned that with two supermarkets taking up around 60 per cent of the market, suppliers would be more reluctant to raise complaints about unfair practices.”
A spokeswoman for Sainsbury’s said: “Combining Sainsbury’s and Asda would mean lower prices and a reduced cost of living for customers across the UK, while contributing even more to the nation’s economy. We are proud of our track record of helping suppliers to grow their businesses and believe the proposal would create new opportunities for small and large suppliers alike, and we look forward to explaining these and other benefits in more detail before the EFRA Select Committee.”
EFRA
The Environment, Food and Rural Affairs Select Committee is a select committee of the House of Commons in the Parliament of the United Kingdom. The remit of the Committee is to examine the expenditure, administration and policy of the Department for Environment, Food and Rural Affairs and its associated public bodies.
Environmental concerns
Food campaigners, environmental lobbyists and a leading farmers’ union have warned the Competition and Market Authority (CMA) that the existence of two mega grocery groups – Tesco and the proposed Sainsbury’s-Asda entity – would give them a combined grocery market share of around 60 per cent and lead to an adverse impact on the environment.
The argument, which is not very plausible, goes that harder negotiations about prices can lead the producers to take environmental shortcuts to meet price demands.
Food Ethics Council’s Dan Crossley tells the Guardian that he worries the merger will force many farmers to cut corners on environmental safeguards and shelve green initiatives.
“Too much pressure on producers only increases the risk of shortcuts being taken, including environmental standards being lowered. It also reduces the likelihood of producers being able to make important long-term investments to drive environmental improvements, like investing in renewable energy on farms”, Crossley argues.
He means that cheaper prices for customers are likely to be unaffordable for farmers, suppliers and the environment.
“At a time when we need to face up to climatic shocks and resource scarcity, we need a resilient food system – and the best route to resilience is diversity.”
The National Farmers’ Union (NFU) agrees.
“The NFU will be examining the details of this proposed merger between Sainsbury’s and Asda carefully and the further concentration of retail power it creates within the food supply chain,” NFU president Minette Batters tells the Guardian.
Easier to regulate
The CMA has indicated it would review the proposed merger, which was first announced at the end of April, but would not comment in advance of the investigation.
On the other hand, the groceries code adjudicator, Christine Tacon, recently said she had “no concerns at all” about the size of Sainsbury’s-Asda, as bigger retailers were often easier to regulate!
She added that she hoped the merger would bring Asda up to Sainsbury’s standards in terms of how it treated suppliers.
Sources
Retail Gazette, The Guardian, Reuters, Sainsbury’s, Asda, CMA, EFRA.