Pressure: Sainsbury’s intends to target bigger suppliers such as Marmite-maker Unilever
Sainsbury’s has vowed to put the squeeze on large suppliers as part of its £14.1bn mega merger with Asda.
MPs had raised concerns that smaller suppliers could be squeezed by the merger which has seen Sainsbury’s and Asda vow to slash prices on everyday goods by up to 10 per cent.
In a letter to Rachel Reeves, chairman of the Commons business, energy and industrial strategy committee, boss Mike Coupe said his real target was bigger suppliers such as Marmite-maker Unilever, Coca-Cola and Reckitt Benckiser, which owns Vanish.
Around three quarters of Sainsbury’s grocery sales come from the 100 biggest suppliers, many of which are multi-nationals. He said: ‘To give some context for this, for every £1 that a customer spent in Sainsbury’s last year, we made 2p profit.
‘If you compare that with large suppliers, they generally make more than 10p profit for every pound we spend with them.’
Sainsbury’s operating margin was 2.24 per cent last year compared with Unilever’s at 17.5 per cent and Reckitt Benckiser’s at 27.1 per cent.
But there have been signs that Unilever is being squeezed as it managed to increase prices by just 0.1 per cent in the first three months of the year. Analysts said the so-called Big Four supermarkets were no longer willing to pay more for goods following Unilever’s row with Tesco over the price of Marmite 18 months ago.
Russ Mould, investment director at stockbroker AJ Bell, said: ‘Increased scale means increased buying power, so the 10 per cent price cuts discussed by Mike Coupe will be largely funded by a big squeeze on suppliers.’
But he added: ‘If supermarkets are strong enough to stand up to a multi-national like Unilever, then smaller suppliers could be in for a really tough time.’
Sainsbury’s said: ‘We see this as an opportunity for large and small suppliers, who would be able to grow their businesses with increased volumes as we grow ours.’