Get out your tap shoes: Mike Coupe is doing a show.
Yes, the tuneful Sainsbury’s boss – who was captured on camera singing the 42nd Street number We’re in the Money on the day he unveiled controversial plans to merge with Asda – is set to perform again this week, this time in front of an audience of parliamentarians.
Roger Burnley, Coupe’s opposite number at Asda (plus Asda’s sustainable business director, Christopher Brown, and Sainsbury’s director of brand, Judith Batchelar), will also be there in supporting roles. They will face questions from the environment, food and rural affairs select committee on their plan to create a group controlling 31% of the grocery market.
Coupe has claimed the tie-up will benefit consumers via 10% price cuts on “many of the products customers buy regularly”, and the committee will probably want to examine that pledge. MPs might ask: do you know how many products? (“You hum it son, I’ll play it”); and how long will the price cuts last? But those questions are merely a segue into this committee’s chorus, which goes: are you planning to cut prices by bullying your suppliers?
The problem for Coupe is, to answer that one, he might need footwork fancier than Fred Astaire’s.
Conventional economic theory suggests that one of the most effective ways of bringing down prices is competition, but his deal reduces it. The merger would create a much more powerful buyer, in an industry that has shown a fondness for squeezing suppliers hard enough to create a choir of sopranos.
Conversely, established grocery players have gone to great lengths to demonstrate how they don’t really enjoy competing very much at all, and only tend to give it their best shot when they get forced into it.
Despite all the platitudes from British supermarkets about how hard they’ve always battled with each other, it actually took a couple of German upstarts to barge their way into the market to remind the incumbents what competition actually entails.
When shoppers started to defect to the discounters Aldi and Lidl, Sainsbury’s, Asda, Tesco and the like suddenly found new – previously impossible – ways of cutting prices. It is hard to see how that innovative spirit will be fostered if a larger entity can achieve similar results just by kicking suppliers.
Tesco, along with a combined Sainsbury’s/Asda, would control more than half of the UK grocery market, which is close to being a working definition of a duopoly. However much Coupe wants to argue that local competition has been enhanced by the growth of Aldi and Lidl, such a concentration of national power is tricky to ignore.
The weakness of Coupe’s defence is betrayed by some wobbly-looking arguments. He memorably claimed that an expanded Sainsbury’s would have only 26% of the market, not the 31% estimated by independent agencies, but you can tell he’s really straining to hit that note. To get there it is necessary for him to include M&S and Boots – but Boots is only a grocer if you live off a diet of Ribena and low-calorie sarnies.
Of course, if Coupe were thinking about the Asda tie-up motivating the enlarged group into developing leaner, more productive processes, then we might speculate that his subconscious mind would have alighted on a different ditty from 42nd Street when announcing the deal.
“If you’re wise, exercise all the fat off”, the lyrics of Keep Young and Beautiful go. “Take it off, off of here, off of there.”
