Suppliers to bear 70 per cent of the brunt of Sainsbury's/Asda merger 'efficiencies', warns InfinityQS

With news that Sainsbury's plans to merge with Asda, there are growing concerns around the financial impact on suppliers and issues of monopoly and competitiveness.

Mike Coupe, Sainsbury's Chief Executive, has gone on record to state the move will not lead to any store closures or job losses, with prices of many popular products expected to be reduced by 10 per cent. Although this sounds like a great deal for UK consumers, there remain big questions around where the savings are coming from and who is paying the difference?

In addition to singing about being 'in the money', Mike Coupe has claimed the merger 'creates a great deal for customers, colleagues, suppliers and shareholders' – but if consumers are enjoying the benefits of lower prices, this must surely be at the expense of suppliers? Coupe went on to report that the expected outcome would save the new group £500m, with £350m coming from 'leveraging the buying power of the combined business'. In this context, 'buying power' can be interpreted as negotiating strength, as the new entity will be in a much better position to demand larger discounts.

David Gurr, Global Channel Manager at InfinityQS, comments: "Both companies are already placed within the top three based on market share and the merger will affect all areas of the UK grocery and FMCG supply chain as retailers are forced to adjust their pricing to remain competitive. With rising production and import costs, suppliers are being squeezed from both ends and it will be imperative they ensure their industrial processes are streamlined and operating at full efficiency. There is great potential for cost saving throughout the FMCG manufacturing sector – for example, according to the Waste and Resources Action Program (WRAP), UK manufacturing accounts for approximately £1.2 billion of preventable food wastage which equates to nearly one million tonnes of food and there are a variety of technologies and strategic decisions that can be deployed to ensure the reduction of excess material and improved sustainability.

"One of the most effective ways for suppliers to retain a healthy profit margin is by optimising their manufacturing processes to maximise efficiency by implementing manufacturing intelligence solutions that automatically identify areas of inefficiency. In addition to making substantial cost savings and enhancing operational effectiveness, implementing cloud-based data monitoring and analytics technology gives manufacturers full visibility into each stage of their manufacturing process and supply chain. This enables operators to easily gather valuable process data that can be compared and contrasted in real-time across multiple lines, factories and regions to instantly identify bottlenecks and areas of improvement. Once inefficiencies have been identified, manufacturers and suppliers can adapt their operational approach, make substantial cost savings through reduced CAPEX and OPEX and regain their competitive edge. Together, these approaches can help offset any downward pressure on margins resulting from this merger," Gurr concludes.

As the supermarket giants battle for supremacy, retailers and FMCG suppliers of food and beverages will need to adapt by becoming more agile and boosting their operational effectiveness. By investing in manufacturing intelligence and making the appropriate adjustments, suppliers and manufacturers will be in a stronger position to respond to market pressures and commercial demands by improving overall production efficiencies, enhancing sustainability and increasing their bottom line.

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