Deals Review – February 2016

Monday 15th February 2016

In partnership with the Business Desk, several of our experts will comment on significant deals every month. For February, retail partner Andy Brian, comments on Asda’s acquisition of meat manufacturers Forza AW and Kober, following a five-year joint venture.

Forza AW and Kober currently supply Asda’s cooked meat and bacon products and have a combined turnover of £440 million.

The acquisition represents an extension of Asda’s vertical integration strategy through its International Procurement and Logistics (IPL) arm.

Having worked closely with Asda’s rival Morrisons for a number of years, including on acquisitions of meat businesses from Vion UK and Cranswick, I have seen first-hand evidence of the benefits that vertical integration can deliver for a food retail business, and I therefore view Asda’s latest move as an extremely smart one.

A vertically integrated supply chain has the clear benefit of cutting out the ‘middle man’, which not only enables the retailer to make more margin, which it can share with its customers by way of price cuts, but also provides a greater degree of control over the provenance and traceability of the products, which is an increasingly important issue for retailers and consumers alike.

For many years, Morrisons led the way in this respect, certainly amongst the ‘big four’ grocers, so it is extremely interesting to see Asda follow suit.

A counter-argument is that developing an in-house manufacturing capability requires significant financial investment, and draws resource and focus away from the retail side of the business, but having witnessed how a well-run in-house manufacturing division can deliver huge benefit, I would have to disagree, and I will be interested to see whether Asda makes further moves in this direction.