Questions are being asked about how Sainsbury’s will deliver promised price cuts if its merger with Asda goes ahead.
The retailer claimed it would cut prices “on many of the products customers buy more regularly” by 10 per cent as it detailed the terms of the deal, which would see Asda ‘s owner Walmart receive £3 billion in cash and a 42 per cent stake in the combined business.
The concern for suppliers is that price cuts could be achieved at their expense, with the combined business’ increased buying power forcing them to accept unfavourable terms of payment.
“A merger of this size will concentrate a lot of power in the hands of one giant company,” warned Mike Cherry, national chairman of the Federation of Small Businesses. “It’s important that power isn’t misused to coerce small suppliers into accepting unfair contracts and poor payment terms.
“Those at the top of Sainsbury’s and Asda should explain how they plan to merge these two supply chains fairly, and give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth.
“When investigating this proposed merger, the Competition and Markets Authority should be looking for cast-iron commitments that a positive standard will be set for working with smaller suppliers.”
Sainsbury’s chief executive Mike Coupe said the merger would offer at least £500 million in cost savings and other benefits.
As well as delivering lower prices, the tie-up would give consumers more choice about how they shopped thanks to investment in technology, he said.
“Sainsbury's and Asda are promising prices cuts, improved quality and extend ranges – which could be good news for consumers,” said Martin Lane, managing editor of money.co.uk.
“The proof will be in the pudding – if the merger was to go ahead we'd have to hope they stick to their promises and don’t let prices creep up.”
Coupe expects the merger to get the green light from the Competition and Markets Authority by the latter half of 2019, saying regulators will be mainly concerned by the benefits for consumers, The Guardian reported.
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