|
NEWS
September
27 2002
|
||
|
And then there were three… Asda plotting take-over of Safeway (aided and abetted by J. Sainsbury). According to unnamed sources in the Daily Mail, Asda, a subsidiary of Wal-Mart (USA), has approached the Office of Fair Trading to establish whether it could get approval for a £2.8 billion takeover of struggling sector rival, Safeway. If the buyout goes ahead, Asda, currently ranked third largest grocer in the UK behind Tesco and Sainsbury, would smoothly overtake Tesco to win a massive 25% of market share for all grocery sales in the UK (see Corporate Watch’s ‘What’s Wrong with Supermarkets’ report http://www.corporatewatch.org.uk/pages/whats_wrong_suprmkts.htm). In Britain, however, 25% of the market share constitutes a monopoly, and Asda will hopefully have serious trouble arguing that it needs to buy Safeway to compete with Tesco. Wal-Mart, which has recently become the world’s largest company, acquired Asda in 1999 after several years of mutual fancying. Wal-Mart’s arrival into the UK market sparked a price war between the supermarkets that almost crippled Sainsbury and Safeway. Both stores had to reinvent themselves, with Sainsbury hiring Jamie Oliver and successfully cornering the ‘foodie niche’. Safeway, struggling in forth place, seemed to be getting back on its feet this time last year. Under dynamic new Argentinian CEO, Carlos Criado-Perez, deep discounts and a store refit sent profits soaring. However, sluggish quarterly postings in April and the share value plummeting 33% over the last six months have had the vultures swarming. Multinational retailers, Carrefour (France), Royal Ahold (The Netherlands) and Casino (France) have all been rumoured to be interested in Safeway as a good way into the UK grocery sector. Safeway is a solely UK-based company and is no relation to Safeway USA. This September, investment bankers, Schroder Salomon Smith Barney downgraded Safeway from ‘neutral’ to an ‘underperform’ rating. This seems to have triggered the current Wal-Mart interest, although Wal-Mart has had its eye on Safeway for sometime. There would also a philosophical empathy if the two companies were to merge, as Criado-Perez is a former Wal-Mart man. The big question is who will benefit from this potential merger? The retailers argue that consumers will gain as tough competition between Tesco, Sainsbury and ‘SafeAsda’ would drive prices down even further. However, many fear that in the long run, this will just continue the trend of supermarkets undercutting small independent retailers; thus destroying the High Street as we know it. Furthermore, there will be less supermarkets to compete with each other. The Consumer’s Association point out that where there is only one supermarket dominating a town or area, prices are 10% higher. Another fear is that further consolidation would give the Big Three even greater power to drive suppliers’ prices down. The global sourcing policies of Wal-Mart and Tesco mean that they can play off farmers around the world for the best price, even if this happens to be below the cost of production. By forcing farmers to produce so cheaply in the UK, it is unsurprising that many cut corners when it comes to environmental and animal welfare concerns. With fewer supermarkets demanding more standardised products, we lose even more rapidly the rich genetic diversity of fruit and vegetable varieties in this country. Once they had outpriced all their smaller rivals, the Big Three would then have total control of the whole food supply chain. They currently control around 70% of all grocery sales. Of course, both Asda and Safeway have denied that they are in negotiations but watch this space. As Verdict research have predicted, ‘Within the next five years, the five major UK grocery players are likely to be down to three, possibly two’. STOP PRESS: latest news is that Sainsbury and Asda have had exploratory talks about carving up the Safeway estate with Asda taking the bigger stores and Sainbury the high street stores. This would be a sneaky way to avoid the Competition Commission, while putting them both within arms reach of Tesco. The fierce competition to determine who is the top dog seems to be very important to the big supermarkets - does this remind you of the playground or what?! What’s
wrong with supermarkets? Corporate
Watch Food and Agriculture Project – features and company profiles: |