Retailers 'turning to takeovers to avoid price hikes'
Brexit is helping drive a fresh wave of UK takeovers in the retail sector as supermarkets consider deals that will help avoid price hikes amid surging inflation, the former boss of Waitrose had said.
Steven Esom, a retail veteran who served as the managing director of Waitrose from 2002 to 2007, told the Press Association that retailers are now turning to mergers and acquisitions (M&A) as a means to control costs and maintain market share.
"Any business looking at their cost base can see the advantage of consolidation." he said, explaining that sales volumes are "absolutely key to keep costs down" for consumers.
"People are looking at making their businesses more efficient and clearly any type of inflation passing through - that's got be mitigated.
"So I would think that businesses are doing this to mitigate the effects of inflation."
His comments come amid amid a flurry of M&A activity in the supermarket sector, with Tesco currently attempting a £3.7 billion merger with Booker.
A tilt by Sainsbury's to acquire Nisa is also thought to be on the cards, while reports emerged earlier this summer that Walmart-owned Asda was exploring a £4.4 billion takeover of discount retailer B&M.
"Businesses are now looking at every way of increasing volumes to mitigate costs," Mr Esom said.
Since the Brexit vote triggered the pound's collapse, retailers have been grappling with a double whammy of rising import costs for goods and rapidly deteriorating consumer confidence.
Mr Esom, who has been an independent director of Cranswick Foods since 2009, served on the board of the British Retail Consortium and now chairs its food certification business, stressed that retailers have "absorbed a lot of the inflation" caused by the collapse of the pound in the wake of the EU referendum last year in hopes of preserving their customer base.
"They've looked at Brexit, they know there is going to be uncertainty over the next two to three years and again, no one wants to shut off the consumer tap - the consumer demand," he explained.
The latest CBI Distributive Trades Survey revealed that retail sales fell at their fastest pace since the Brexit vote in August, and while companies do expect sales growth to recover, pressures on household budgets are expected to continue as inflation - currently at 2.6% - continues to outstrip wage growth.
"I think everyone's very mindful that the small advantage that companies may get by passing through inflation, (which) could be absolutely mitigated by a drop in demand and creating inefficiencies in their supply chain."
Rising costs have been particularly difficult for small businesses including Kent-based Southern Salads which fell into administration earlier this month after failing to negotiate new pricing terms with its own European suppliers of fruit and vegetables.
Without sufficient currency hedging in place, the salad and veg business collapsed under rising costs.
"It's quite a balance for manufacturers and retailers, Mr Esom said, "but at the end of the day, volume is very important."