The merger of two UK supermarket giants might merit a mention when Kerry Group shareholders gather on Thursday for their annual general meeting. But it is likely to feature far more prominently in the thoughts of Patrick Coveney and his management team at Greencore.
It’s not as though Coveney doesn’t already have enough on his plate. The Greencore boss has already promised his shareholders he will spend half his time in the US to try to sort out the mess at the group’s underperforming business there, which prompted a profit warning and a 30 per cent slide in the company’s market cap in March.
But the confirmation that Sainsbury's and Asda – the second- and third-largest players in the UK market – have agreed an €8 billion-plus deal in a defensive move to counter the German discounters Aldi and Lidl and also to better compete with market leader Tesco will have come as unwanted news.
The Irish group is the sole supplier of sandwiches to both Sainsbury and Asda after recent contract wins.
Major customers
Ahead of the merger, both were major customers in their own right. Goodbody's Jason Molins estimated that Asda accounted for 10 per cent of group profit and Sainsbury 5 per cent.
Together, among Greencore customers they rank in importance behind only Marks & Spencer, which is reckoned to contribute 19 per cent to the bottom line.
While both supermarkets’ reliance on Greencore for their sandwiches means its position as a key supplier to the enlarged group is secure, it does make the Irish business vulnerable as the merged entity looks to deliver on promised price cuts of 10 per cent.
Clearly, the easiest target for such savings are suppliers. With Greencore so exposed to the enlarged group and the merger reducing competition in the sector in the UK, the leverage on price on dulled.
Though the merger is not universally negative for Greencore, Coveney and his team could find themselves stretched on both sides of the Atlantic.
