A shock wave ran through the world of food, farming and shopping last week as news of a plan to merge supermarket giants Sainsburys and Asda was leaked.
Supermarkets now dominate food shopping – and many other parts of the retail world. Tesco takes the largest share of the UK supermarkets’ combined revenue which accounts for £86Bn out of the £185Bn total UK grocery market. Sainsburys and Asda currently rank second and third but together, would overtake Tescos and take nearly one third of the supermarket share of the grocery market.
Sainsburys already bought Home Retail in 2016. And if this planned merger goes ahead, it would create a retail behemoth of 2,800 stores nationwide, ranging from the big Asda and Sainsburys superstores, to local convenience stores, plus an additional 739 Argos and three Habitat stores.
Sainsburys Chief Executive, Mike Coupe, assures everyone that the merger is good news for the consumer; that no stores will be closed, and that everyday goods will be cheaper – perhaps as much as 10% cheaper. But Coupe then went and ruined the moment when he was caught, between TV interviews, singing
“We’re in the money, come on, my honey,
Let’s lend it, spend it, send it rolling along!”
Which, if you’re not familiar with it, is from the American musical classic 42nd Street (now aptly back on stage in London and featuring the singer Lulu). Set in the Great Depression era of American History, it’s a heart-warming tale of an ordinary young chorus girl from a small town who, against all odds, becomes a Broadway Star. The song was also used in the Hollywood film Gold Diggers of 1933. Perhaps that’s where Coupe got the inspiration. For gold it will indeed shower him with, given the millions of Sainsburys shares he owns (or has options to buy) – shares which have already jumped greatly in value as a result of the announcement. That’s in addition to his £1m+ salary and bonuses.
Will everyone else be showered with gold though? Asda’s owners will do very well from the merger. Sainsburys’ offer to pay £3bn cash and Asda retains a 42% stake in the new outfit. Asda – which was originally created by a merger between a dairy firm and a chain of butchers in Yorkshire, was bought by US retail Titan Walmart in 1999. So Walmart will get a cash down-payment and a big slice of the new business.
The other big player is the Qatar Investment Authority, which owns nearly a quarter of Sainsburys. Between them, Walmart and the QIA will own more than half of the new business. And of course the lawyers and bean counters, who always profit from big mergers, will be ordering in the Champagne.
So what about the rest of us, or indeed things like the environment, which usually lose out in these deals? Well, despite Sainsburys’ claims, it’s inconceivable that shops won’t close. Will towns, which currently have a Sainsburys, an Asda and an Argos, really will have all three in a couple of years time? Job losses are also inevitable in the “back office” of each company.
And what about the businesses that supply Sainsburys and Asda at the moment. Farmers, whose produce enters the labyrinth that is the UK’s food supply chain, will do badly from the proposed merger. This is because the new company (let’s call it ASSburys) will have even more power to drive down the prices they pay their suppliers – or even force producers to lose money, on “buy one get one free” offers.
Perhaps the new company, with its increased profits, will pay more tax into the nation’s coffers, to help pay for things like repairing the roads damaged by all the supermarket vans whizzing about delivering groceries. Err, no. Walmart uses a complex web of offshore and shell companies to move its profits around the world, but mainly to places where it doesn’t pay tax.
In 2015, an investigation by Americans for Tax Fairness, revealed that Walmart had stashed $76 billion in overseas tax havens, including the British overseas territory Tax Havens the British Virgin Islands and the Cayman Islands. And while Sainsburys has historically channelled significant amounts of its profit into the many and varied charitable trusts the Sainsbury family has set up, it’s by no means clear how much of ASSburys profits will continue to flow to these Trusts after the merger.
Sainsburys has already been criticized for reneging on a commitment to improve animal welfare standards in the production of its own label chicken – and to such an extent that Compassion in World Farming has withdrawn the “Good Chicken Award” it gave Sainsburys in 2010.
Walmart certainly has no such concerns over chicken welfare, and will presumably be pushing hard for ASSburys to be able to buy cheap, low animal-welfare “chlorinated chicken” after Brexit. Indeed only a few days ago a Parliamentary Committee concluded that it would be madness to rush into a quick trade deal between the UK and USA after Brexit, for precisely these reasons. The National Pig Association has already voiced concerns that Sainsburys’ policy of sourcing British Pork (with relatively high welfare standards) will be dragged down to Asda’s level.
Reducing competition in any market is bad news for consumers and the Environment. In theory, there are Regulators whose job is to prevent monopolies from forming. The Competition Market Authority has, naturally, been urged to investigate ASSburys. But it has already shown itself to be spineless by approving Tesco’s takeover of Booker last year. This merger reduced competition and squeezed suppliers just as ASSburys will. The Government has also refused to widen the remit of the Grocery Code Adjudicator to investigate the impact of mergers like this. So it is powerless to act to reduce unfair trading practices, despite it being set up, in theory at any rate, precisely to do that very job.
One might think the power to drive down prices paid to the producer is good news for the consumer. The problem is that food prices are already so low that they create a wide range of other problems: Producing food which is nutritious, which is grown in a way which minimises damage to the Environment and which has high animal welfare standards, is always more expensive. Organic food is a good example of this price hike. Forcing farmers to produce cheap food just passes the costs on to farm animals, low paid workers in the food industry, and damage to the Environment.
Farm subsidies (provided by taxpayers) paid to farmers are effectively taken from them by the supermarkets, in the form of low prices paid to them for the food they grow. These subsidies then (mainly) find their way into shareholders dividends and senior executives’ salaries; they do little to reduce the retail price of food to the consumer. So it’s likely (and depressing) that in reality, this planned mega-merger will lead to food producers being squeezed so far that they go out of business.
this article originally appeared on the Lush Times website.