Asda meat acquisition no threat to food manufacturers: analysts

Shore Capital analyst Clive Black gave reassurances after Asda bought outright key suppliers​ – ​Kober and Forza AW – ​in which it previously owned a stake. 

The supermarket has had an exclusive partnership with the Yorkshire firms for some time and the deal represented the formalisation of existing arrangements, Black said.   ​

“Quite simply, if Asda makes it work then it is good for the retailer, noting that these purchases very much represent continuity,”​ he said. ​

Not ‘​material new challenge’​ 

“As such we do not see these acquisitions as a material new challenge to the UK manufacturing base.”​

Last year food manufacturers were warned that they could be under threat from big retailers acquiring manufacturing capabilities.   

Asda made the announcement on Friday (January 8) after a five-year joint venture with the meat companies’ owner Max Smith­-Hilliard. 

The businesses have been added to the portfolio of Asda’s subsidiary International Procurement and Logistics (IPL), which sources products for the firm. 

“IPL has been a progressively growing feature of the Asda business model, supporting margin and providing a degree of exclusivity and flexibility,”​ Black said.  

‘Inevitable’ outcome​ 

Analyst Julian Wild, head of the food team at Rollits solicitors, said Asda was involved in establishing the Forza joint venture from the outset and the deal was probably ‘inevitable’.​ 

“Although Asda has developed its own in-house produce operation, I don’t see the Forza acquisition as an indicator of greater involvement in food manufacture,” he said.​ ​

“As in the case of Morrisons’​ food and distribution business, there’s no obvious logic in greater vertical integration. Retailers should do what they do best ​–​ retailing.”  ​ ​

Wild has previously said Morrisons must sell the company’s manufacturing facilities​ and focus on retail in order to thrive. 

But Shore Capital believes the retailer should make more of its food manufacturing capabilities​ and turn them into a “weapon”​. 

Meanwhile, Asda looks set to re-ignite the price war among the UK retailers by investing £500M in price cuts​.