Interesting times lie ahead in the UK Grocery market with the revelation this weekend that Sainsbury’s and Asda are in advanced talks over a possible merger. This would make the combined group a retail giant, taking £1 of every £3 spent on groceries in the UK with revenues of over £50bn.

Already they are talking about using their greater buying power to cut shelf prices. Good news for shoppers no doubt but possibly not so for suppliers. Whilst some of the price cuts may be supported by distribution rationalisation and no doubt a few store closures (although they are currently saying this will not the case) most of the cost savings will for certain be obtained by leveraging their joint supplier base.

Bigger groups want better terms as always (who wouldn’t?) It will be tricky for suppliers, particularly for the smaller ones, but it also is an opportunity to make some overall gains too in the total trading terms agreement. I’m sure the possible new larger group will deploy a number of traditional negotiation tactics:

  • Demand price reductions of x% having supposedly calculated the supplier ‘benefit’ from the merger.
  • Set a tight date by which these new terms will apply (time pressure is always a good negotiation ploy!)
  • Threaten delists, distribution losses etc should these new terms not be accepted.

Suppliers can do a few things in the meantime:

  • Stay calm.
  • Resist any tactics, like time, introduced to make them feel under pressure to make a decision.
  • Evaluate the total impact of any demand for a cost reduction and look at opportunities to trade a cost reduction for improvements in other variables (space, distribution, promotional features, PR support, new listings, deliveries just for starters).
  • Remember nothing is agreed until everything is agreed.

Undoubtedly, should the merger be approved by the CMA (and remember they previously approved the Tesco/Booker merger) it will change the trading dynamics but it’s not a one way street, there are potential supplier gains to be had in any negotiations too.

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