MPs on the Efra Committee have grilled the bosses of Asda and Sainsbury’s on the impact of the proposed merger on smaller suppliers.
Sainsbury’s and Asda bosses have been grilled by MPs on the impact of their merger on the supply chain.
Sainsbury’s chief executive Mike Coupe and Asda chief executive Roger Burnley both appeared in front of the Efra Committee on June 20.
Efra chair Neil Parish questioned whether the ten per cent savings spoken about by both businesses would come from producers.
“You say it is a very cut throat business out there, I know exactly whose throat you are going to cut,” he said.
Both Mr Burnley and Mr Coupe argued the majority of cost savings would come from the largest suppliers, where Sainsbury’s and Asda were receiving the same products but paying different prices and synergies between the businesses.
Mr Coupe said they operated a mixed margin business so if they cut the price of an item, it was not necessarily because the price they paid to the farmer for that item had been cut.
These savings would then be invested in lowering the price of ‘everyday items’, such as bread and milk.
Mr Coupe gave the example of cereal brand, Weetabix where both stores may be paying different prices to receive the same product.
"Weetabix make 20p in the pound profit and we do not think it is an unreasonable question to ask Weetabix to take the buying price that is currently paid by Sainsbury’s or Asda and make it the same for both companies,” he said.
When questioned on whether these savings would then be placed on the company’s farmers and suppliers, both chief executives said they would support the widening the Grocery Code Adjudicator’s remit.
Mr Parish raised concerns Sainsbury’s were going to replicate Asda buying style.
He gave the example of pork, where much of Asda’s products were European but most of Sainsbury’s pork was British.
The committee pushed Mr Burnley to commit to buying British first, not just sourcing what was cheapest.
He argued over half of the products Asda sold were British.
“You are talking about one of the most British of the big players combining with one who want to be British whenever we can while giving our customers what they want. I think that overall is good news for British farming.”
Director of Sainsbury’s brand Judith Bachelor reassured the panel they intended to continue with their dedicated dairy supply chain model and when questioned said they could potentially look at expanding this model into Asda, who currently source from Arla.
Mr Burnley also said he believed suppliers were ‘cautiously optimistic’ and saw potential opportunities in the combined business.
“As I say, suppliers need a successful retailer as much as the retailer needs a successful supplier,” he said.
The deal was subject to scrutiny by the Competition and Markets Authority and Mr Burnley confirmed he expected it to take around 18 months and the merger to go ahead in the second half of 2019.