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Suppliers “operate in a climate of fear” warns FDF in Asda-Sainsbury’s probe

Published:  14 November, 2018

Suppliers effectively operate in a climate of fear as Sainsbury’s and Asda act as gatekeepers to the market”, the Food and Drinks Federation (FDF) has said in the latest round of consultations on the proposed supermarket merger. 

The Competition and Markets Authority (CMA) has been collecting industry feedback on the impact of the proposed merger, which would see Britain’s number two and three supermarkets overtake Tesco to become Britain’s largest supermarket group. 

A number of suppliers and the FDF have spoken out against the merger, with one – known only as Supplier A – criticising Asda and Sainsbury’s pledge to cut everyday prices by 10% by forcing distributors to lower their costs. 

Not only is there “no guarantee” lower retail prices would last beyond one year, it is likely to have a “waterbed” effect by up pushing up prices in other retailers as suppliers try to recoup their loss, said Supplier A. 

“It is likely [the merger] will attract customers from other, smaller retailers who will inevitably lose market share, suffer decreased bargaining power and therefore increased purchasing costs”, they added. 

Another unnamed supplier (Supplier B) similarly said squeezing distributors to lower retail prices would adversely affect UK consumers in the medium to long term, partly by also reducing the willingness of suppliers to invest in NPD. 

“If the merged entity sought to harmonise its suppliers’ pricing and/or terms, we would anticipate that suppliers would (amongst other things) materially reduce their innovation spend. This, in turn, would likely result in a substantial reduction in consumer choice,” the source said. 

On top of these potential negative impacts, the FDF said suppliers are also “reluctant to share information that could risk identifying themselves as they cannot afford to be delisted, regardless of legal protections offered”. 

Sainsbury’s and Asda disagree with the above, stating “conditions for the waterbed effect are not present, given the highly competitive nature of the UK grocery market”.