Why Sainsbury and Asda grocery merger should be blocked

Dark prospects for supply chain partners

The proposed £12 billion merger between Britain's Sainsbury and Asda grocery chains is not only a sign of competition desperation but poses undeniably bad news for both the public, in terms of diminished competition, and the hapless supply chains who have suffered years of unfair bullying practices at the hands of the four grocery behemoths, which will be cut to three unless the Competition and Markets Authority (CMA) blocks the deal. But can the CMA, now seemingly a toothless tiger following its approval of the Tesco-Booker merger, be trusted to put the consumers' interests first and why should the deal be blocked?

For many years the four big UK grocery chains, Tesco, Sainsbury, Asda and Morrison, have controlled over 70% of the UK grocery market which offered little by way of meaningful price competition, and a hard time for their suppliers grappling with up to 60 different, odious ploys to squeeze the last drop from them. Some of these ploys were sheer chutzpah while others were downright fraud, like the "Drop and drive" deliveries, whereby the retailers claimed goods never arrived and refused to pay for them, setting back 20 suppliers alone with £15 million in losses. Yet other wheezes bordered on blackmail. But then came two disrupters to give the big retailers nightmares, something I warned about in print 30 years ago, the rise of foreign, deep discounters and the disintermediating effect of online shopping.

In just a few short years the German discounters, Aldi and Lidl, have seen their share of the UK market soar from near nowhere to 12.6% of the total market, which has come at the expense of the big four. The big four know why the discounters can undercut them on price, typically up to 30%, but their big problem is that they cannot emulate the discounters' business model without huge disruptions to their own business models. The real reasons, therefore, behind this proposed Sainsbury-Asda merger are to buy market share through mergers and then make efficiency gains to slash costs, since they cannot easily buy the discounters as they are family owned. If the proposed merger goes through it will have nearly a third of the entire market, pushing Tesco's 27% market share into second place. But the synergy savings from the merger cannot be said to be anywhere near enough to lower prices enough to compete with the discounters.

The big four grocers are in a bind now that price is king in a cash-strapped market. The Albatross around their necks is their legacy of huge superstores trying to sell anything and everything under one roof, which carries a huge inventory cost. A typical Tesco superstore would stock up to 40,000 SKUs compared with only 1,600 for a discounter, which means much of Tesco's stocks are slow movers, whereas for the discounters they are all fast, and if they become slow they are mercilessly dropped. The cost of holding inventory can dwarf all other warehouse costs combined. When Tesco's founder, Sir Jack Cohen, proclaimed "Pile 'em high and flog 'em cheap" it was a workable business model but in those days SKUs were far fewer. Today, a more accurate mantra would be: "Pile 'em high, flog 'em cheap and flog 'em FAST."

So, then, if there is nothing in it for the consumers to benefit from the merger what will it be like for suppliers? Perhaps ASDA itself shows the way. Struggling as Britain's third largest food retailer, it was named last year as the worst of the UK's major supermarkets in the treatment of its suppliers. About 12% of the suppliers said ASDA rarely or never complied with the Grocery Supplier Code of Practice. With behaviour like that it is hardly surprising that Britain's Shadow Business Secretary, Rebecca Long-Bailey, called for the CMA to examine the combination of Sainsbury and Asda "as a matter of urgency" because of its potential impact on suppliers. There is no reason to expect that shabby supplier treatment will get any better and every reason to suppose it will worsen. Adverse competition and supplier consequences, therefore, should make it imperative to block this merger bid. Failure to do so would show the MCA as unfit for purpose and worthy of dissolution.

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Warehouse LEDs may pose higher cancer risks

Nowhere in industry, perhaps, has the adoption of LED lighting been more dramatic over a few years than in warehouses, which now accounts for most of the new light fittings in them, but is there a health peril that could come back to haunt warehouse operators unless remedial action is taken soon?

The cause behind the remarkable switch away from earlier lighting technologies like fluorescents and metal halide to LEDs is a no brainer. Although initially more costly than other lighting sources, LEDs are up to 30% more energy efficient, have a far longer life, mean much lower maintenance costs, offer a better colour rendition, and are eminently suited to smart sensors. All this means that ROIs are remarkably short, less than two years.

The latest, potentially disturbing health news, however, came in respect of research into street LED lighting in Spain, where scientists believe that they have found evidence of a "strong link" between Britain's new generation of street lighting and two common forms of cancer --- breast and prostate. In regards to prostate cancer the belief is that heavy exposure to LEDs doubles the risk, while raising it 1.5 times for breast cancer. There is, as yet, no proof of a causal link, but the scientists believe that the "blue light" emitted by LEDs may disrupt the body's circadian rhythm, which in turn affects hormone levels, and both prostate and breast cancers are hormone-related.  

For some years the medical profession has expressed concern that white LEDs may be emitting too much blue light which may affect vision and sleep owing to blue light suppressing melatonin, a chemical that controls the body clock. The advice from the American Medical Association recommends reducing the blue wave lengths.

 Blue light is a range of the visible light spectrum emitted by most white LEDs and so warehouse operators should check on this aspect to see if any remedial action can be taken. It is a problem that also affects mobile 'phones, tablets and TV screens. Research into the problem so far has been limited, because LEDs are a relatively new technology, at least in terms of its recent, widespread adoption. If it can be proved soon that the blue light exposure is carcinogenic but no action was taken afterwards to remedy the problem then long-term warehouse workers affected by those common cancers or damaged eyesight would be able to bring legal actions for high damages.

This kind of threat has already emerged in respect of long-term exposure to diesel fumes inside warehouses, following the WHO reclassification of diesel fumes in the workplace as a class 1 carcinogen, meaning that it definitely causes lung and bladder cancer. Given that there is now no longer an excuse for using diesel forklifts inside warehouses, even if they are fitted with cats and soot filters, their future indoor use could lead to future law suits from stricken warehouse workers.
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