Tesco, Sainsbury’s and Asda alliances ‘will put pressure on smaller players’
The Moody’s credit ratings agency said that tie-ups among the Big Four supermarkets will squeeze suppliers.
Tesco’s strategic alliance with French retailer Carrefour and Sainsbury’s merger with Asda are set to see the likes of Ocado and Iceland come under pressure, according to Moody’s.
The credit ratings agency said that the tie-ups will squeeze suppliers, who will then look to make up lost profits from smaller players such as Iceland and Ocado.
“Lower purchasing costs for the retail alliances will translate to lower revenue for suppliers overall, even if the alliances enhance volumes for some suppliers.
“We expect suppliers will look to recover lost profits by extracting better terms from smaller customers.
“In the UK grocery segment for example, Ocado and Iceland are among those that could come under pressure from suppliers here,” Moody’s said in a research note.
Tesco’s deal with Carrefour involves the duo jointly purchasing own brand products, while Sainsbury’s £12 billion merger with Asda will create a supermarket titan with unprecedented buying power.
We believe that Tesco’s agreement with Carrefour will enhance its ability to maximise its price competitiveness with the merged Sainsbury’s-Asda as well as German discounters, Aldi and Lidl Moody's
Sainsbury’s and Asda have gone on record saying that suppliers will bear the brunt of a pledge to bring down the price of everyday products following their union.
Moody’s said that Tesco’s deal with Carrefour is “credit positive”, citing increased bargaining power and purchasing efficiencies that will reduce costs.
In addition, it will allow them to improve quality and choice of products, reduce prices, and therefore enhance their competitiveness.
“The Tesco and Carrefour deal is the first cross-channel alliance to come to our attention. The rationale is sound because UK grocers have relationships with many of the same international suppliers as their continental peers.
“We believe that Tesco’s agreement with Carrefour will enhance its ability to maximise its price competitiveness with the merged Sainsbury’s-Asda as well as German discounters, Aldi and Lidl,” Moody’s added.
The German retailers have both been gaining market share in the UK by undercutting the so-called Big Four supermarkets – Asda, Sainsbury’s, Morrisons and Tesco.