Biz to resist 'downward pressure on prices' from Asda and Sainsbury's merger

Biz to resist 'downward pressure on prices' from Asda and Sainsbury's merger

The music industry is closely watching the proposed merger of Sainsbury’s and Asda for any potential impact on physical retail.

In the joint announcement on agreed terms, the two supermarkets pledged to “create a dynamic new player in UK retail”. The aim would be for a 10% reduction in prices across everyday items. 

Physical music remains a key stock line for supermarkets and they have seen the benefit in value terms from the vinyl revival. According to ERA, supermarkets had a 27.4% share of the overall physical music market last year.

Sainsbury’s began stocking vinyl in 2016 and helped supermarkets take an 8% share of vinyl sales in 2017. Last month it increased the number of stores stocking vinyl and expanded the range available, including exclusive compilation albums on its ‘Own Label’ range.

However, the creation of a UK retail powerhouse could result in pressure on prices for suppliers. 

Jim Brooks, CEO of distributor Cinram Novum, told Music Week that any “possible upside” for consumers in pricing on entertainment products would be at the expense of studios and labels.

“When the new company flexes its buying power it will purchase the product cheaper and could offer a share of that additional margin to shoppers,” said Brooks. “There is some potential for a fall in volumes and reduced content purchase prices, both leading to lower revenues for the content owners, with the possible benefit of lower prices for the consumers and the latter eroding overall market prices.”

Cinram Novum delivers directly to Asda and Sainsbury’s, while it is the exclusive supplier of music, video and games to Morrisons.

There is some potential for a fall in volumes and reduced content purchase prices

Jim Brooks

PIAS said supermarkets are not its “core business”, though the independent distributor is paying close attention to the merger. 

“If it meant there was a general downward pressure on prices we would resist this,” Richard Sefton, director of sales & distribution, told Music Week. “The growth area of our business with supermarkets has been vinyl, and there is no evidence to suggest that lowering prices would increase this growth further.”

Sainsbury’s chief executive Mike Coupe has said the deal will not lead to store closures. The merger would create a network of 2,800 Asda, Sainsbury’s and Argos stores, though there has been speculation about potential closures further down the line.

The regional variation in the two supermarket chains provided some optimism in the biz about the number of stores that would remain open following the completion of the merger.

“Any perceived negative impact on the physical market will be entirely dependent on store closures and imposed divestments, and given the North South divide of the chains these could be minimal,” Derek Allen, SVP, commercial at Warner Music UK told Music Week.

“From our standpoint, the effect on the market will depend upon the post-acquisition strategy,” said Brooks. “The current communications from Sainsbury's indicate that they do not intend to make significant changes to the conjoined estate which, whilst good news, is difficult to imagine. Every outlet lost will lead to volume exiting the market that our experience dictates will not come back.”

Sefton said he would be “much more worried” at store closures elsewhere in the music retail sector, such as HMV or independents. “They are key to our core physical business,” he said.

There was some postive reaction about the effects of consolidation in retail in terms of opportunities for physical releases.

“The Sainsbury’s Asda merger has so far been couched very much in terms of physical retailers needing to respond to the challenge of the big online retailers,” said AIM chief executive Paul Pacifico. “If supermarkets really can solve the problem of delivering better to the spectrum of local tastes while retaining economies of scale, they could succeed here and this would deliver better both for music fans and independents.”

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