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.