What do the latest developments in the United Kingdom retail landscape mean for the supply chain, particularly in the U.S.?
The UK grocery market, which is currently valued at $251 billion (U.S.) is set to reach $282 billion by 2022. This market has historically been very consolidated, with the ‘big four’ supermarkets, Tesco, Sainsbury’s, Morrisons and Asda, accounting for just over 70% of the retail sector.
Emma Gough, senior consultant at Promar International, said further consolidation could affect all suppliers, including those in the U.S.
At the start of March, the UK’s largest grocery retailer, Tesco, finalized a $4.9 billion (U.S.) takeover of Booker, the country’s largest wholesaler, despite concerns from some suppliers that this will create a monopoly within the market.
Sainsbury’s and Asda announced plans to merge their businesses earlier this year, in order to provide better prices, quality and product ranges to customers.
The merger, which is estimated to be worth U.S. $16 billion, is yet to be approved by the UK Competition and Market Authority. However, it’s anticipated that if approved, the deal will be completed by the second half of 2019 and when merged, these two businesses would be the new grocery market leader, with a market share of 31%, compared with Tesco at 28%.
It’s important to note that the “big four” supermarkets are losing market share and customers to the discounters, such as Aldi and Lidl, who are growing at a fast pace in the UK. Together, they currently account for a 13% share of the market, almost double their 7% share in 2013.
What does this consolidation mean? In our experience, growth and consolidation makes established players in the grocery sector more resilient, as well as offering them a certain amount of protection from new market entrants to the UK, such as Amazon.
However, the Tesco and Booker takeover and the Sainsbury’s and Asda merger would result in just two retailers holding an almost 60% majority share of the UK grocery market.
This is a cause for concern for some suppliers, who may fear prices being dictated by the dominant larger players. On the other hand, it creates potential opportunities for suppliers, including those from the U.S., who are looking to increase their sales volumes to the newly merged retailers, as well as gain exposure of their products to a wider range of consumers.
And, if a new trade deal is developed between the UK and the U.S. post-Brexit, then U.S. produce exporters of apples, pears, blueberries, grapes, grapefruit, raisins and nuts in particular could have better access to the UK market and take advantage of new supplier opportunities.
Recent developments in the market will likely result in further rationalization of the supply base, and the opportunities for some with the larger accounts will result in losses for others.
Finally, U.S. suppliers need to work out where the UK fits in their export portfolio and how this will sit within their long-term strategy, because from what we’ve seen over the past few months, the UK market is constantly evolving.
John Giles is a divisional director with U.K.-based Promar International, the value chain consulting arm of Genus PLC. E-mail him at [email protected].