Following reports that Sainsbury's and Morrisons held consolidation talks earlier this year, and with Tesco reportedly looking to buy Majestic Wine, questions are being raised about what major supermarket mergers could mean for shoppers across the UK. The talks between Sainsbury's and Morrisons did not progress, but they have stirred interest in the retail industry.
More consolidation on the horizon?
Sarah Johnson, founder of Flourish Retail, believes further consolidation conversations are likely in the future. 'They'll mostly involve the mid-market supermarkets,' she predicts. 'Aldi and Lidl have a clear point of difference on price, and at the premium end, Waitrose and M&S win on quality and experience.'
'The supermarkets in the middle are getting squeezed because they can't compete as effectively on either. A merger is a way of buying market share when you can't easily win it.'
Why merge and what it means for prices
According to Johnson, a merger gives a business more 'buying power', allowing the retailer to negotiate harder with suppliers and potentially bring prices down. She adds that it can also 'streamline logistics and overheads, so the cost of running the business falls'.
'Margins in grocery are very tight, so even small savings per product add up quickly, so that's the business case. The harder question is whether shoppers would actually benefit from a merger.'
Alex Rowberry, Senior Insight Analyst at the Institute of Grocery Distribution (IGD), tells Metro that while consolidation 'would not automatically mean lower prices', it could help limit price increases. Operating on a greater scale could allow retailers to better manage rising costs, so they wouldn't need to constantly hike prices.
'The outcome would depend on the nature of the deal and how effectively the businesses were integrated,' he says.
Potential downsides for shoppers
Johnson warns of possible downsides for customers, including the loss of some local supermarkets. In areas where two merged retailers had stores close by, the company could decide it no longer needs to operate both.
'For a shopper, that could mean a longer trip, fewer options nearby, and less reason for the remaining store to compete hard on price,' she says.
Shoppers could also see some of their favourite products disappear. 'When retailers combine, they rationalise what's on the shelf, which often means less choice, and smaller brands and suppliers can get squeezed out if someone else is doing the same job.'
No immediate changes expected
Despite the speculation, experts do not think there is urgent need for concern. Rowberry agrees with Johnson that further consolidation in the grocery retail sector is 'possible', but notes it is a very complex process that would take considerable time and face intense scrutiny.
As such, quick changes are unlikely to happen any time soon.
