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Sainsbury's suppliers and Porter's Five Forces

Penny Brooks

3rd May 2018

Not surprisingly, one of the responses to the news of the potential merger between Sainsbury's and Asda comes from their suppliers, who fear that it would make their life very difficult. Sainsbury's boss Mike Coupe has pledged to cut prices on everyday products by around 10% after the deal, which is bound to appeal to consumers. But suppliers fear they will have to shoulder the cost of those savings.

Speaking to the BBC, Austin Sugarman, boss of Fine Foods International, a supplier of instant coffee based in Bedfordshire, said "There will be plenty of losers from this. If suppliers are going to have to come up with the savings, then we'll see consolidation in the supply base."

He is backed up by many other bodies representing small suppliers, such as the Federation of Bakers and the Forum of Private Business. They give the example of Arcadia Group, which owns brands such as Topshop and Dorothy Perkins. In January, the firm imposed a 2% discount on all current and existing orders from suppliers due to poor Christmas sales.

A consultancy firm that advises suppliers on their contract deals with supermarkets says that suppliers need to develop the confidence to say 'no' to deals they don't like; if the supermarket needs to stock their product in order to satisfy the shopper, then the supplier holds more power than they give themselves credit for. 

Sainsbury's have their own say on this issue. It is pretty much the response from them that you might expect: a Sainsbury's spokeswoman told the BBC that suppliers would benefit from the deal.

"At this stage, we are still in the early phases of our plans but we believe this is a great opportunity for suppliers as they will be able to make their supply chains more streamlined, to develop differentiated product ranges and to grow their businesses as we grow ours.

"We are also actively investing in small suppliers - we are recruiting a team which is dedicated to working with smaller and distinctive suppliers to help them bring new products to market and to handhold them through this process."

The Competition and Markets Authority, and the Groceries Code Adjudicator, are bound to be heavily involved in regulating any deal between Sainsbury's and Asda. Is this relationship between suppliers and supermarket buyers an area where they could impose closer regulation?

If you want a bit more background on the market position of the two supermarkets, with the opportunity for a bit of data analysis, have a look at the Sainsbury's - Asda deal in nine charts.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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