Sainsbury's in vertical integration beef supply trial

Responding to queries about whether the company was exploring increased vertical integration in its supply chain, a spokeswoman for the retailer said: "We're in the early stages of a very small trial to explore new ways to increase efficiencies, while offering our customers the best possible quality and value."​

Her comment came after rumours surfaced that Tesco and Sainsbury's, two of the country's biggest supermarkets, had set up working groups to explore vertical integration amid a plethora of market pressures.

Sainsbury's declined to comment further.

Challenging​

The challenging retail climate might go some way to explaining the rationale behind a move towards vertical integration, though. Sainsbury's was the only one of the Big Four supermarkets where beef value declined in the 52 weeks to 10 September 2017, down by over 5% according to Kantar Worldpanel.

Tesco, Asda and Morrisons all experienced varying levels of modest growth in the same period.

Sainsbury's still has the second-largest beef market share, but Asda only needs to increase its share by 0.4% to climb above Sainsbury's, if the former remains static.

"Other retailers are definitely looking at [vertical integration​]," Charles Sercombe, National Farmers' Union (NFU) livestock board chairman, told this site. Tesco and Sainsbury's are two of the players "doing it".

Vertical integration​

Tesco declined to comment. But Sercombe said he expected to see more progress in vertical integration.

"I genuinely think that Brexit will be a catalyst for change in the area,"​ he said.

"Look, there will be a percentage of the famers whom I represent that will go nowhere near that with a barge pole. But there are a lot of younger, more enlightened farmers who want to guarantee themselves a market for their stock in an 18-month or two-year production cycle. They are very keen to explore the possibilities of that, and I think that change will inevitably be driven because margins may get tighter all the way through the supply chain and I think we will all need to work together."​

Laura Ryan, strategy director at AHDB Beef & Lamb, said the levy board would support a vertical integration pilot scheme, describing it as a "no-brainer"​.