Asda and Sainsbury's merger composite shot 2

Labour wants CMA rules to be toughened so adjudicator Christine Tacon has more powers to stop the companies forcing suppliers to cut prices

The Labour Party has held senior level talks with union leaders and suppliers organisations, as it considers a possible move to try to derail or impose strict conditions on the Asda-Sainsbury’s merger, The Grocer can reveal.

A round table, chaired by Rebecca Long-Bailey, shadow secretary of state for business, energy and industrial strategy, is thought to have involved a raft of union and trade bodies, including farmers groups and manufacturers.

After the talks Long-Bailey told The Grocer the merger could spell “disaster” for suppliers because of its impact in lessening competition.

It is understood fears were also raised over the possible impact on jobs, despite reassurances from the companies that no stores would close.

There were also discussions regarding a potential squeeze on suppliers, with the combined group, alongside Tesco, set to account for over 60% of the grocery market.

Labour wants CMA rules to be toughened so adjudicator Christine Tacon has more powers to stop the companies forcing suppliers to cut prices.

The CMA last week opened its investigation into the mega-deal, asking interested parties to submit their initial views by 4 June.

“For suppliers, including farmers, this deal poses the risk that their supply contracts are terminated or renegotiated on worse terms,” Long-Bailey said. “For many, especially those who heavily depend on contracts with large supermarkets, this could spell disaster for their business.

“Some suppliers may even be cut in a bid to rationalise the two enterprises and reduce costs. They could face more demanding terms and conditions as the combined mammoth purchasing power of Sainsbury’s and Asda are used to demand more competitive rates, later payment terms, and quicker supply times.”

Long-Bailey is calling on the government to widen the “public interest test” which would enable ministers to intervene, rather than a decision being left to the CMA, especially as Asda is not a listed company, meaning the merger is unlikely to be dealt with under the takeover code.

She added: “The government should seek assurances from Asda-Sainsbury’s on employees and suppliers, which could be made binding through a deed.

“The Labour Party will be calling on the government to get assurances from both companies on these things. Currently, the public interest test is too narrow and Labour would widen it. The Secretary of State can only intervene on grounds of national security, media plurality or financial stability. But this means that many mergers are waived through that ultimately have detrimental effects on our national economy, such as significant unemployment, the collapse of supply chains, and the loss of research and development spending.”

Long-Bailey also warned that the CMA does not do enough to prioritise suppliers, who are likely to be the main ones in the firing line.

“The competition regime does not guard against many of the risks to suppliers, employees or food security,” she said. “Arguably, the CMA does not have to take into consideration the fact suppliers may be squeezed for worse terms and lower prices.

“Nor, arguably, will it consider the effect of rationalisation as suppliers are cut or dropped to reduce costs. We want to strengthen the role and legal teeth of the grocery code adjudicator in order to ensure that all suppliers are protected.”

Shortly after the deal emerged, adjudicator Tacon told MPs she was powerless to intervene because the adjudicator role had not been set up to police prices.

Labour also warned that Sainsbury’s CEO Mike Coupe’s pledge there would be no store closures because of a merger were “empty words”.

“Though Sainsbury’s has said it does not plan to shut any stores, this is at present an empty promise,” said Long-Bailey. “Nor has any promise been given on the closure of distribution hubs or the position towards suppliers who may, in turn, be forced to carry out staff cuts.

“There is a real risk that their assurances will be nothing but empty words, and that the pressure of the market will force them to go back on their word and close stores.

“They have failed to reassure employees who work in the distribution centres or offices. Or those employees who work in the supply chain, up and down the country, who may risk losing their job if the supply contract is terminated.”