British think tank warns Sainsbury’s-Asda merger puts up to 2,500 supply chain jobs at risk

10 May 2018 --- Analysis from the British think-tank New Economics Foundation (NEF) claims that up to 2,500 jobs in core supermarkets supply chains could be at risk following the planned merger of Sainsbury’s and Asda. Direct store closures and job losses have been ruled out by Sainsbury’s with the retailer claiming that the merger could, in fact, lead to lower prices of up to 10 percent.

However, the issue of lower consumer prices has led to speculation that this could be partly met through negotiating lower prices with suppliers.

The analysis comes as Sainsbury’s and Walmart's UK supermarket chain Asda are joining forces in a deal worth £15 billion (US$20.67 billion) to create a dynamic new player in the retail market with a huge breadth of products and multiple channels that are expected to shake-up Britain’s retail space.

Sainsbury's and Walmart Inc. have agreed on terms of a proposed combination to create an enlarged business which, if approved by regulators, will surpass Tesco, currently the UK’s largest retailer.

NEF analysts have examined the potential impact on jobs in the supply chain in key supermarkets if either all or some of a 10 percent price cut is passed on to core food product suppliers as well as logistical services.

It shows that a 5 percent cut in output for these suppliers could lead to a loss of more than 1,200 jobs, while a 10 percent cut could lead to a loss of up to 2,500 jobs.

And NEF says the total job losses related to price cuts for supermarket suppliers could be higher because these estimates do not cover the total supply chain or take into consideration the further impact of lost demand in local economies from reduced spending by companies, employees and their families, which, according to NEF, could lead to further business closures outside of supermarket supply chains.

“If the proposed merger between Sainsbury’s and Asda are allowed to proceed, we are likely to see a classic case of monopoly-like power in a market where things are already heavily stacked towards the ‘big guys,’” said Alfie Stirling, Head of Economics at the New Economics Foundation.

“This is part of a broader picture, where time and again UK capitalism shows itself to be geared against small business in a way rarely seen in the rest of Western Europe.”

“Small and medium-sized firms make up more than 99 percent of all UK companies, 60 percent of employment and nearly half of turnover, yet they are repeatedly required to play second fiddle.”

Sainsbury’s has stated that the breadth of products the tie-up would deliver, the enhanced scale and a strengthened balance sheet will deliver a great deal for customers, colleagues, suppliers and shareholders of both businesses.

For suppliers, there is great opportunity to grow and more streamlined supply chains mean more efficiency and, according to both Sainsbury’s and Asda, the combination will protect the choice for customers in the future.

A Sainsbury's spokesperson told FoodIngredientsFirst: “We strongly refute the NEF’s methodology and conclusions. A more resilient business, with lower prices and increased sales will result in higher volumes for suppliers.”

“The proposed combination would create opportunities for suppliers as well as for customers, colleagues and shareholders.”

FoodIngredientsFirst has reached out to Asda for further comment on the NEF claims.

NEF defines cores suppliers as people involved in the production or wholesale of food items, transportation services, warehousing and advertisements.

While supply chain effects are based on NEF analysis of the latest ONS multipliers derived from “input-output supply and use tables.” Estimates of job losses down the supply chain are based on the assumption that supply chain output will fall due to a drop in supermarket retail prices being passed through to output prices for suppliers.

The NEF is active at a range of different levels including work on housing, reform of the financial system, the future of work, democracy and devolution and climate and environment. It performs reforms and advocacy, aiming to help build a “new economy where people are really in control.”

By Gaynor Selby