Supermarket squeeze for Irish suppliers if UK giants cash in
Consolidation in the British retail space will put pressure on Greencore and others to crunch prices
The Sainsbury's/Asda merger announcement last week creates a retailing giant that will squeeze Irish suppliers hard.
The merger will combine Sainsbury's, currently number two in the UK grocery market with a 15.9pc share, with Asda, the number three with 15.5pc. The combined entity will leapfrog the current market leader Tesco, which has a 27.6pc share.
The deal will sweep aside the 'Big Four' that has dominated British food retailing for the past decade-and-a-half. It will give way not so much to a 'Big Three' but a 'Big Two' with number four Morrison, which has a 10.5pc share, receding ever further in the rear-view mirror as Tesco and Sainsbury's/Asda battle it out for market supremacy.
"This is a pivotal moment for the British grocery market. A merger between Sainsbury's and Asda would transform the traditional landscape, placing nearly a third of market share in the hands of the joint supermarket giant, though the march of the discounters - and any enforced store closures - could impact this figure", said Fraser McKevitt, head UK retail and consumer insight at market research firm Kantar Worldpanel.
The merged company will have annual sales of £51bn (€57bn), 2,800 stores in the UK and 330,000 employees. It is targeting annual cost savings of "at least" £500m.
So where are the £500m (€566m) of annual cost savings going to come from?
One of the first things that will happen if the deal gets the go-ahead from the UK's Competition and Markets Authority - which seems likely given that in 2017 the CMA waved through both Tesco's acquisition of wholesaler Booker and the Co-op's takeover of symbol group Nisa - is that the Sainsbury's and Asda buying teams will get together to go through every supplier contract with a fine tooth-comb.
Where they find that a supplier is being paid a higher price by either Sainsbury's or Asda, that supplier will very quickly come under extreme pressure to agree to the lower price for their entire business with the merged company instead. With only two retailers controlling over 60pc of the total market, most suppliers will have little choice but to take it on the chin.