MPs lambast Asda-Sainsbury’s deal as planned merger scrutinised

The impact of the proposed merger of Leeds-headquartered Asda and its Big Four competitor Sainsbury’s came under fire yesterday, with MPs saying they were talking “baloney” about its impact on suppliers.

Neil Parish, chair of the Environment, Food and Rural Affairs Committee, said small suppliers would suffer from their pledge to cut 10% off the price of everyday items after they merge.

Asda chief executive Roger Burnley and Sainsbury’s Mike Coupe were giving evidence at the committee.  Asda and Sainsbury’s announced a £15bn merger plan in April.

Questioning Roger Burnley, CEO of Asda, Parish said: “It is not a marrying of two similar beasts, they are not similar beasts. Why don’t you do something with the discounters? There is no logic to this deal other than a financial fix.”

The Asda CEO said he refuted this and stated that Asda couldn’t afford to stand still in such a competitive marketplace, with savvy customers who have more choice. He added: “there is no such thing as a wholly loyal customer.”

“Asda and Salisbury’s mean different things to customers,” said Burnley.

“This combination allows us to invest in processes, being a better Asda and a sustainable business into the future.”

Parish raised concerns for the farming and food sector suppliers, as he said that 10% cuts would “extract more pain on smaller suppliers.”

Burnley disagreed with this, to which Parish retorted: “Baloney – this is baloney,” adding that there needed to be truths told about the buying system post merger.

“If you are going to save 10%, you are going to get most of that from the supply chain,” said Parish.

Both Burnley and Coupe said that small suppliers would not suffer through their need to cut the price of every day items including milk, bread and tinned tomatoes.

“I can categorically say that the synergy benefits on which the combination is predicated are not based on making 10% savings from individual suppliers,” Burnley said.

Parish went on to say the Asda-Sainsbury’s proposal to government was “largely political correctness that will disappear further down the road.”

Burnley said that synergies from the buying system would be what would make the success of the combination. He added that there were around 4,000 suppliers at Asda and that a small number of firms accounted for largest proportion of Asda’s turnover, with just 24 suppliers accounting for a third of items the supermarket sells.

He said that there would be an aligning two buying prices, with both buying that item for same price.

Parish said: “Largely speaking, the lower price buying power is mainly Asda. The new regime will be the Asda price range.

He added: “It will be the suppliers that will suffer.”

Burnley replied: “The vast majority are large, multinational suppliers. They will not be creating new low price, just having access to the price that they offer us already.”

He added: “We need supply base as much as they need us. We cannot be successful without them.”

Coupe said that he had lots of suppliers talking to him about the benefits they see.

Parish said that the proposed merger would see the combined group become 30% of the market, therefore extracting more power. He added: “Suppliers are terrified of you already, the fact is that you are going to be bigger beasts. Why shouldn’t you be more competitive? Farmers are. Why does the supplier pay the price?”

Burnley said that there was a “cautious optimism across suppliers.”

He added: “They need and want us to be successful and see volume growth.”

The Competition and Markets Authority is investigating the proposed merger and initial feedback in the process was shared on Monday.

 

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