Keep an eye on private equity grocers, warns food industry

The food industry has demanded greater oversight of private equity-owned supermarkets, following the buyout of two Big 4 grocers.

Covid-19 has allowed the major players to increase their share of the grocery market, while suppliers face mounting pressure from labour shortages.

Food and Drink Federation boss Ian Wright said suppliers needed extra protection from private equity owners, which are not subject to the same scrutiny as listed companies.

Speaking just days after Clayton, Dubilier & Rice won a £10 billion bidding war for Morrisons, he called for expanding the remit of the GCA supermarket watchdog.

READ MORE: Tesco denies ‘defensive’ move against private equity

“The Big 4 supermarkets were subject to scrutiny through action of shareholders and investors,” he told the Financial Times

“But if you’ve got private equity running these businesses, the level of transparency you have with listed businesses is just not there.”

Wright said consumers and suppliers needed support because private equity owners extract value by selling assets, loading acquisitions with debt and driving down costs.

Cold Chain Federation head Shane Brennan hoped that private equity would invest long term in securing logistics, rather than engage in asset-stripping and cost-cutting.

He said: “The reality is that we are in the era of ‘just in case’ supply chains, not ‘just in time’.

“Everyone is going to have to pay more for storage and distribution – whether they like it or not.”

Federation of Wholesale Distributors chief James Bielby agreed big retailers needed to be watched given their power over distributors.

“We’re seeing supermarkets paying HGV drivers more, but in return they are demanding exclusivity, which shuts some smaller players that serve my members out of the market,” he claimed.

“Logistics companies can’t afford to turn down supermarkets.”

In February, Asda was sold to a consortium of TDR Capital and the Blackburn-based Issa brothers. 

It is now operated from a Jersey-based tax haven.

Sainsbury’s and Tesco’s share prices have soared after speculation that private equity could turn its attention to the remaining FTSE 100 grocers.

Wright argued the GCA needed wider powers soon, with supermarkets attempting to push Covid-19 costs further down the supply chain.

“In this new situation there is a strong case for the [GCA] to plug the transparency gap that private equity ownership leads to,” he said.

Wright predicted that the watchdog would have to intervene more often as suppliers and big retailers started “punch ups” over supply agreements.

The watchdog was established in 2013 after a series of scandals highlighting supermarkets’ treatment of their suppliers.

It regulates the conduct of all retailers that the Competition and Markets Authority judges make more than £1 billion in annual revenue from grocery sales. 

The government can also block takeovers if they threaten its ability “to respond to risks relating to public health emergencies”.

Business secretary Kwasi Kwarteng backed the private equity bids for Morrisons after a meeting with chief executive David Frost.

Asda and Morrisons declined to comment.

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