• The cost of the Sainsbury's-Asda deal will likely end up falling on the groups' suppliers, they were told by MPs yesterday.
  • If coupled with Asda's successful George clothing line, the combined business could stand as a competitor to the likes of UK value clothing retailers such as Primark.
  • Yet the merger could be a "game changer" in the industry and could deliver price reductions across a range of products.
If coupled with Asdas George clothing line, the combined business could stand as a competitor to the likes of Primark

If coupled with Asda's George clothing line, the combined business could stand as a competitor to the likes of Primark

The CEO's of Sainsbury's and Asda were yesterday (20 June) grilled by MPs over their proposed merger, with the two UK supermarket chains told the cost of the deal will likely end up falling on the groups' suppliers.

"It's a cut throat world out there and we know whose throat you're going to cut," Neil Parish, chair of the Environment Food and Rural Affairs (EFRA) Committee, is understood to have told Asda CEO Roger Burnley and Sainsbury's CEO Mike Coupe.

Sainsbury's and Asda agreed terms for a proposed combination of the UK's second and third largest grocers to create one of the UK's leading grocery, general merchandise and clothing retail groups, in April. They had combined revenues of GBP51bn (US$70.1bn) in 2017.

With more than 8m customers regularly buying its Tu clothing, Sainsbury's is the sixth largest clothing retailer by volume in the UK. It hails a "strong" position in both the womenswear and childrenswear markets and says there are opportunities for future growth in menswear, which now accounts for 15% of clothing sales and is the retailer's fastest growing clothing category.

If coupled with Asda's successful George clothing line, the combined business could stand as a competitor to the likes of UK value clothing retailers such as Primark.

Richard Lim, CEO of Retail Economics, believes that if given the green light by the Competition and Markets Authority (CMA), the merger would be a "game changer" in the industry and could deliver price reductions across a range of products, putting it in a position to challenge Tesco and the discounters head-on.

MPs yesterday accused the supermarket groups of creating a "financial fix" and using "mickey mouse" numbers.

Shore Capital analysts Clive Black and Darren Shirley noted the Committee's attention to supply chains, but also its references to price cuts. They question where the funding from the cuts will come from, how many SKUs it will cover, and over what time period?

They add: "What contingency or provision will there be for changes in external factors such as currency and commodity prices never mind the competitive environment? Messrs Coupe and Burnley were no doubt well briefed on what to say, or not to say, to the Committee, and no doubt there may be further hearings too. However, the CMA is likely to be a different matter. In that respect, shoppers may expect more rigour on the price cut claims."