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Blog: Dangers and co-opportunities as 'super' supermarket of Sainsbury's-Asda looms large

Just when you thought nothing could surprise us any more in the UK grocery market, I think it’s fair to say a few jaws collectively dropped when news of the planned merger between Sainsbury's and Asda leaked out over the weekend and was confirmed on Monday, writes Co-operatives UK Chief Operating Officer Neil Turton.

The tectonic plates of retail have shifted in recent years. The growth and alacrity of the German discounters alongside online and changing shopper habits have driven enormous change. When I was a child, my parents would take me shopping on the once-a-week trip. It happened to be at Asda, being in Yorkshire of course. Meals were planned, they were eaten as a family. How things have changed. Customers have embraced more frequent shopping trips, discounters like Aldi and Lidl have opened in communities and convenience store sales have now grown to almost a quarter of all food sales.

The days of the planned trip to a big supermarket are much less and the investments large retailers made in vast out of town premises in the 80s and 90s now look like potential white elephants. The retailers are looking to fill these with other attractions, from clothing and other non-food to restaurants and leisure hotspots - destinations that offer something more. But this is change on a big scale and ultimately customers will decide who or what emerge as winners. It’s not just down to market share and profits of course, shopping and retail are vital elements within our social society.

"It’s a vital time for co-ops to continue their great work engaging with their membership and building relationships at a local level with both suppliers and customers. In that sense, agility can compete with scale to create shops that are interesting, good value and connected with their community - putting back social value and not taking value away to benefit distant shareholders." Neil Turton, Co-operatives UK

A combined Sainsbury’s/Asda would create a giant with around 32% market share of food sales. With Tesco at around the same level, these huge behemoths would control two thirds of the UK market. This poses a real challenge for others. Sainsbury's has been clear in its narrative this week; that it is seeking to ‘transfer value’ from suppliers to customers. That lovely management phrase masks an often brutal process of driving input costs down to the lowest of the low, or beyond. If successful the deal could help pay for itself and customers may share in that. But it may also be a painful process for farmers and other suppliers. Lower prices are great of course, but at what cost to our food industry in terms of quality and diversity? The deal will be subject to a great deal of competition scrutiny, which may in itself take a year or two, but competition law is designed to look at what is in the end customers interest and not necessarily the broad supply chain on which our food supplies depend.

It will be a big test of both the Competition and Markets Authority and the Groceries Code Adjudicator, who is meant to protect suppliers. Both Sainsbury's and Asda have been reasonable supporters of co-operative supply chains in the past. Asda has a longstanding relationship with co-operative dairy supplier Arla Foods and until recently Sainsbury’s carried a strong torch for the Fairtrade brand. It is to be hoped that these values continue in the future but they may also be at risk. But where there is risk there is also opportunity and the creation and future behaviour of giant retail companies is something that customers will rightly be concerned about.

Retail co-operatives in the UK did not change fast enough in, perhaps, the last great wave of change in UK food retail - the creation of big superstores in the 70s and 80s. We saw a 30% market share for co-ops in my childhood decline to around 6% today. Last weekend I walked round the small mining village near Barnsley where I grew up, looking at a row of shops, each one either closed or struggling by as a charity shop or takeaway. In my youth, one was co-op food, one a drapery and another a co-op pharmacy.

"Customers do want to see a a variety of shops and in an increasingly disconnected world, the value of a co-operative business which cares not only for them but the places in which they live and shop is vital." Neil Turton, Co-operatives UK

The current wave of change presents threats too. The size and buying power of the major players is overwhelming and the continental discounters have resources to continue to grow. But what they do not perhaps have is the connection with local communities that co-ops or good local independent retailers have. It’s a vital time for co-ops to continue their great work engaging with their membership and building relationships at a local level with both suppliers and customers. In that sense, agility can compete with scale to create shops that are interesting, good value and connected with their community - putting back social value and not taking value away to benefit distant shareholders.

Customers do want to see a a variety of shops and in an increasingly disconnected world, the value of a co-operative business which cares not only for them but the places in which they live and shop is vital. The number of retail co-ops has consolidated too over the last decades and recently we have seen The Co-op take over my old employer, Nisa. The Co-op is itself now back to its roots as a wholesale as well as retail society, supporting retailers and their customers. Co-ops may not win the battle on scale but they can outperform rivals through social difference, membership engagement and local connections - across the supply chain and community.

Many co-ops are doing a great job - but there is more to be done so customers understand the value of ownership and how value created in a mutual business stays and recirculates in local communities. There's a great opportunity for a renaissance in community retailing as a counterpoint to the changes we are seeing. Co-operatives and vibrant independents create unique stores and vital links for local suppliers. I think this alternative is something the UK public and food suppliers want to see, but it is up to us across the movement to make it happen and to co-operate and communicate better than ever before. The Competition and Markets Authority process for Sainsbury's-Asda is likely to be a long one so there is time, but there is no better time than now to pick up this challenge together.

Written by Neil Turton
Updated: 04/05/2018