Focus now on Sainsbury as market digests Tesco’s French connection

London Briefing: Consumers promised lower prices but suppliers fear they’ll have to pay

Carrefour  shopping trolleys. Photograph: Reuters/Eric Gaillard/File Photo

Carrefour shopping trolleys. Photograph: Reuters/Eric Gaillard/File Photo


After the excitement of Tesco’s surprise French connection on Monday, supermarkets will be back in focus today as Britain’s second-largest grocer reveals its latest quarterly performance.

Sales figures from Sainsbury will not impress, but the market will be keenly interested in a progress report on the group’s planned £14 billion (€15.8 billion) merger with Asda – and also in chief executive Mike Coupe’s take on Tesco’s unexpected tie-up with Carrefour.

The two moves – Tesco’s “strategic alliance” with Carrefour and Sainsbury’s merger with Walmart-owned Asda – are very different, but the strategy behind them is the same: to boost buying power in the fiercely competitive grocery market.

Carrefour is Europe’s largest retailer and, for now, Tesco is the UK’s largest grocer. However, it will be overtaken by the Sainsbury/Asda combination, assuming the deal goes through, and some analysts see Tesco’s move as a direct response to the looming merger of the UK’s second and third-largest supermarket groups.

Even without that, the food retail industry is getting tougher by the day, as the German discounters Aldi and Lidl continue their relentless rise and Amazon steps up its assault on the market.

There wasn’t much detail in Monday’s announcement, but it’s clear that higher-margin own-brand products will be a particular focus of the three-year Anglo-French buying pact. That should help both groups in their battle against Aldi and Lidl.

Tesco was not giving any figures, but one analyst has estimated the total cost savings that could be achieved by the alliance at £400 million.

Just as Sainsbury and Asda promised price cuts when they unveiled their deal in April, Tesco also said prices would fall and shoppers would also enjoy greater choice and improved quality.

While Tesco also claimed that “significant opportunities” would be created for suppliers, someone has to pay the bill for lower prices, and it’s hard to escape the conclusion that it will be the suppliers – their double-digit margins are much fatter than those of the retailers, and they will clearly be squeezed for better deals.

Regulatory scrutiny

While the Tesco/Carrefour tie-up is expected to escape significant regulatory scrutiny because there is virtually no geographical overlap between the two retailing giants, the potential impact on suppliers is a key focus of the current competition investigation into the Sainsbury/Asda merger.

Concern has already been expressed by MPs and other groups, particularly on how smaller suppliers might be affected. In a recent parliamentary hearing, the chief executive of Asda was accused of talking “baloney” after he claimed they would not suffer as a result of the merger.

Suppliers were “absolutely terrified” claimed MP Neil Parish: “It’s a very cut throat business out there and I know whose throats you’re going to cut,” he said.

MPs expressed frustration with the supermarket bosses over their reluctance to spell out exactly which prices would fall and where the necessary cost cuts would be made. When the merger was unveiled, the two groups promised savings of 10 per cent on what they called “everyday items” such as bread and milk but declined to give further detail.

There was also some haggling over what the combined market share of the merged business would be, with the supermarket chiefs preferring a figure of 25 per cent (if grocery sales from non-specialists such as Boots and B&M are included) rather than the 30 per cent-plus share of the mainstream grocery market.

Sainsbury’s own share of that market has slipped somewhat in recent months – the most recent industry data from Kantar Worldpanel showed it was alone among the big four grocers in suffering a sales fall over the 12 weeks to mid-June, with a decline of 0.2 per cent, while its merger partner Asda posted a gain of 1.8 per cent.

The slide took Sainsbury’s share down from 16 per cent to 15.6 per cent, still ahead of Asda’s 15.1 per cent. Tesco’s share stands at just below 28 per cent.

Discounters Aldi and Lidl, meanwhile, continued to outpace all the rest, with sales increases of 8.2 per cent and 10 per cent respectively, taking their market shares to 7.4 per cent and 5.4 per cent.

Coupe is expected to confirm Sainsbury’s sluggish sales performance, with analysts forecasting a drop of 0.1 per cent in underlying sales over the group’s first quarter. That compares with a gain of 0.9 per cent in the preceding three months and will raise fears that the time consuming task of arguing through the Asda merger with the competition authorities is proving too distracting for management.

Let’s hope not – a final ruling on the deal is not expected for at least a year. Tesco, on the other hand, should have its French connection up and running well before then.

Fiona Walsh is business editor of

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