tag:theconversation.com,2011:/au/topics/asda-22855/articlesAsda – The Conversation2021-08-09T11:22:38Ztag:theconversation.com,2011:article/1657692021-08-09T11:22:38Z2021-08-09T11:22:38ZRecord numbers of UK firms are being swallowed by private equity – should we be worried?<p>Two big takeover battles in the UK are a sign of the times: supermarket chain <a href="https://www.ft.com/content/935745af-d952-45b4-96e2-e193f7d95fdd">Wm Morrisons</a> and respiratory medicines group <a href="https://www.ft.com/content/6f566bda-1a7c-402c-b04d-b3e0dcc2148e">Vectura</a> are both the subject of bids in the billions of pounds by private equity firms. In the case of Vectura, Carlyle Group is battling it out with Marlboro cigarettes giant Altria, while different private equity suitors are competing to land Morrisons.</p>
<p>It comes as private-equity buyouts of London-listed companies are their highest in <a href="https://www.ft.com/content/6f566bda-1a7c-402c-b04d-b3e0dcc2148e">20 years</a>, <a href="https://www.thetimes.co.uk/article/bidding-for-uk-firms-at-14-year-high-x8s82208r">contributing to</a> takeover deals worth £156 billion in 2021 to date. Big deals include aerospace firm <a href="https://www.defensenews.com/industry/2021/08/02/american-firm-to-take-over-britains-meggitt-in-88-billion-deal/">Meggitt</a> (bought by Parker-Hannifin for £6.3 billion), <a href="https://www.thisismoney.co.uk/money/markets/article-9227379/Spitfire-parts-maker-Signature-Aviation-agrees-3-5bn-takeover-consortium.html">Signature Aviation</a> (bought by a consortium led by Blackstone for £3.5 billion), and another supermarket chain: <a href="https://www.retailgazette.co.uk/blog/2021/06/issa-bros-push-ahead-with-asda-takeover-after-cma-accepts-petrol-station-sale/">Asda</a> (TDR Capital and the English billionaire Issa brothers for £7 billion). </p>
<p>Private equity firms have also bought motoring support group <a href="https://www.theguardian.com/business/2020/nov/25/aa-agrees-takeover-deal-private-equity-investors-motoring-uk">the AA</a> in recent months, marking its second stint in private-equity ownership; and a 10% stake in <a href="https://www.thetimes.co.uk/article/private-equity-firms-543m-deal-for-stake-in-liverpool-3q3kzjw0r">Liverpool</a> football club (whose majority owner, Fenway Sports Group, is essentially a specialist private equity firm anyway). With the exception of Asda’s private-equity owner, which is based in London, these buyers are all American. </p>
<p>Private equity firms are investment vehicles that are not listed on the stock market. Their objectives are no different to listed investment companies, namely increasing profitability by making businesses more efficient. But private equity has long <a href="https://hbswk.hbs.edu/item/do-private-equity-buyouts-get-a-bad-rap">had a reputation</a> for cost-cutting, job losses, hiking product prices and loading acquisitions with heavy debts, so a big influx of takeovers is always going to raise eyebrows. So why the surge, and what are the implications?</p>
<h2>Understanding the model</h2>
<p>Private-equity deals are a bit like a corporate version of buy-to-lets. Where a landlord would buy a property and get the tenants to pay the mortgage in the hope that the property goes up in value and can be sold at a profit, private equity does this with companies. </p>
<p>They take control of an “undervalued” publicly listed firm using their own money and substantial borrowings from financial institutions. The aim is for the acquisition to pay back the takeover price and all the interest payments on the loans. The remaining profits then compensate the private-equity owners for their risk, as well as being reinvested in the business. Most private-equity firms expect to sell acquisitions within three to five years, whether by public listing or a resale.</p>
<p>The current popularity of these buyouts has <a href="https://www.thetimes.co.uk/article/bidding-for-uk-firms-at-14-year-high-x8s82208r">been ascribed</a> to the effects of Brexit fears and COVID-19 on UK share prices (“bargain valuations”, according to The Times). Since the 12-month lows at the end of October 2020, the FTSE 100’s gain of 29% <a href="https://uk.tradingview.com">lags behind</a> that of the Dow Jones (33%) and the DAX (38%). </p>
<p>Yet the appreciation of sterling against the US dollar and euro has negated this difference to some extent, particularly for US-based investors. Rather than UK listed companies being undervalued overall, it is more that some businesses look cheap – particularly given the UK economic recovery, which is expected to be <a href="https://www.thetimes.co.uk/article/britains-economic-bounceback-set-to-outstrip-the-g7-v6g6r75f2#:%7E:text=The%20UK%20had%20been%20expected,%2C%20Germany%2C%20Canada%20and%20Japan.">the fastest</a> of the major economies. </p>
<p>Private-equity firms and institutional investors, which accumulated substantial cash during the worst of the pandemic because they saw deal-making as riskier than usual, aim to seize on these opportunities by taking advantage of historically low borrowing rates. </p>
<p>Most attractive are businesses with relatively stable income streams. Morrisons fits this profile well. Its pre-tax profits <a href="https://www.retail-systems.com/rs/Morrisons_Profits_Down_50pc_After_290m_Covid_Bill.php">fell 50%</a> in 2020, softening the share price. But grocery revenues are resilient and Morrisons has a £6 billion property portfolio, including most of its supermarkets.</p>
<h2>Reasons to be wary</h2>
<p>So how worried should we be about private-equity buyouts? Some might argue their reputation for asset-stripping is worse than is deserved. There have certainly been examples of this behaviour but the need to sell on a valuable asset in the three to five-year time-horizon is a strong incentive not to sweat a business too much. </p>
<p>Advocates of efficient markets would add that undervalued assets should be acquired by whoever values them more highly and can improve their efficiency and profitability. But while this may often be true, there is more inherent value in taking companies private than keeping them listed: </p>
<ul>
<li><p>Private-equity buyouts are generally heavily debt-laden. Public companies tend to be more conservative with debt given their duty to stakeholders and their reluctance to disclose commercial information to lenders. Highly indebted firms’ interest repayments are tax deductible as a cost of doing business, which reduces their debt-servicing costs and thus gives them a funding advantage. </p></li>
<li><p>Privately owned firms are not subject to the same financial reporting and accountability checks and balances. They are under no obligation to answer to all their stakeholders or the public. For example, they don’t need to disclose who ultimately owns them, or the remuneration of their directors. </p></li>
<li><p>Because private-equity ventures don’t have to reveal ultimate ownership, potential conflicts of interest can be obscured. For example, two companies in the same sector both owned by private equity could have the same ultimate owner and be quietly colluding without the competition authorities realising.</p></li>
<li><p>The <a href="https://www.frc.org.uk/getattachment/31dfb844-6d4b-4093-9bfe-19cee2c29cda/Wates-Corporate-Governance-Principles-for-LPC-Dec-2018.pdf">Wates Corporate Governance Principles</a>, introduced in 2018, are a voluntary code of governance for both public and private firms above a certain size. Principles include mitigating business risks and fostering good relationships with stakeholders. But there has been limited uptake to date, and since public listed companies are arguably expected to follow such principles regardless of Wates, private companies again benefit.</p></li>
</ul>
<p>With private-equity takeovers so popular, these advantages threaten the idea of <a href="https://thebusinessprofessor.com/en_US/business-governance/shareholder-democracy-definition">shareholder democracy</a> – namely that listed companies are more likely to do the right thing because shareholders can walk away at any time. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="An aerial shot of a shareholder AGM." src="https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415230/original/file-20210809-27-1lfjpms.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Shareholder democracy is arguably worth protecting.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/3aVlWP-7bg8">Mikael Kristenson/Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Private-equity buyouts may improve the efficiency and profitability of UK companies. But if firm does this by, for example, taking advantage of the reduced scrutiny to flout workers’ conditions or raise product prices, there will be adverse implications for society as a whole. And if, as many are predicting, interest rates soon have to rise to ward off inflation, more heavily indebted companies could mean more corporate collapses. </p>
<p>If adherence to the Wates’ principles is anything to go by, it will take more than voluntary codes of conduct to protect against these dangers. If we need new legislation to ensure private-equity owned firms are transparent about their ultimate ownership, avoid behaving anti-competitively and act in the interests of stakeholders, then so be it.</p><img src="https://counter.theconversation.com/content/165769/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Read does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After sitting on the sidelines in 2020, US private equity is moving in for the kill.Robert Read, Senior Lecturer in International Economics, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1639252021-07-05T17:15:09Z2021-07-05T17:15:09ZMorrisons’ bidding war: buyers promising to do right by staff and customers are wearily familiar<p>British supermarkets are generally viewed as a sound investment for those wanting steady if not spectacular returns. Shoppers may regard them as essential, especially during the pandemic, but over the years their asset worth has not risen comparable to, for example, tech stocks.</p>
<p>This may be about to change because of the “bidding war” currently underway for supermarket chain Wm Morrisons. The fourth-largest chain in the UK after Tesco, Sainsbury’s and Asda, with 10% of the groceries market, Bradford-based Morrisons is being pursued by several American private-equity suitors. </p>
<p>Clayton, Dubilier & Rice, being advised by former Tesco supremo Terry Leahy, was the first above the parapet. It made an unsolicited bid that valued Morrisons at £5.5 billion, which <a href="https://www.ft.com/content/0abdbc0d-051e-4b75-bb41-194ef2ef25d5">was rejected</a> by the board on June 17. </p>
<p>The board has <a href="https://www.morrisons-corporate.com/globalassets/corporatesite/investor-centre/offer-from-fortress/final-form-rule-2.7-announcement.pdf">now announced</a> that it has agreed to recommend an offer from another US private equity group, Fortress, which values Morrisons at £6.3 billion. Fortress is owned by Japanese investment giant SoftBank, and would do the deal in partnership with Canadian pension fund CPPIB and a unit of US conglomerate Koch Industries. </p>
<p>But before shareholders decide whether to go ahead, Apollo Global Management, another private equity group, <a href="https://www.ft.com/content/9d1a6019-6571-478c-8b1f-f267bb582f0d">has said</a> it is looking at making a counterbid. Morrisons shares are consequently up 11% at the time of writing. And meanwhile, Asda has <a href="https://www.ft.com/content/ce7092f9-645a-46bd-8007-611c99fd8907">just had</a> its own £6.8 billion <a href="https://www.thetimes.co.uk/article/issas-finally-cleared-to-take-control-of-asda-bdjpm2j8x">takeover deal</a> by the Issa brothers and private equity group TDR Capital approved by the UK competition authorities. </p>
<p>So why the sudden activity, and what does it mean for the sector as a whole?</p>
<h2>The Morrisons way</h2>
<p>Morrisons, like most British supermarket chains, has a long pedigree. It was founded in 1899 by William Morrison as a market stall in the city of Bradford in the north of England. His son Ken took over in 1952 aged only 21, and oversaw the opening of Bradford’s first “self-service store” six years later. </p>
<p>The chain remained primarily based in the north of England until it bought Safeway in 2004. It went through some hard times after that takeover, issuing numerous profit warnings, but has since stabilised operations. It now employs almost 118,000 people and operates nearly 500 stores, <a href="https://www.yorkshirepost.co.uk/business/consumer/morrisons-must-be-protected-from-the-asset-strippers-ros-snowdon-3283976">85% of which</a> it owns outright (the average for the sector being less than 60%). </p>
<p>In what is seen as a very individual approach, Morrisons runs an <a href="https://theconversation.com/if-amazon-buys-morrisons-it-could-be-a-win-for-consumers-and-a-major-threat-to-other-supermarkets-163189">integrated supply chain</a>, for example owning food manufacturing facilities and a fishing fleet. I view the company’s approach as being similar to the <a href="https://www.routledge.com/Quality-Improvement-Techniques-in-Construction-Principles-and-Methods/Mccabe/p/book/9780582307766">Japanese quality philosophy</a> in the way it ensures long-term relationships with suppliers and farmers. </p>
<p>This, along with the high store ownership, is likely to be what has made Morrisons attractive to private equity, at a time when the whole sector is viewed as undervalued – particularly following the pandemic. Supermarkets generate steady cash flow, and private equity investors like asset-rich companies with the potential for reducing costs and increasing sales. </p>
<p>Yet private equity has a <a href="https://www.ft.com/content/aa2d70b9-208e-4515-a503-f0808c978e87">bad reputation</a> for extracting the maximum profit from companies by breaking them up and loading them with very high levels of debt. The quid pro quo is that these buyers would argue they achieve stunning returns for investors, although peer-reviewed research has <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3623820">raised doubts</a> about this. </p>
<p>Inevitably there will be worries that Morrisons and Asda will suffer from this approach, thus undermining their ability to deliver value and quality to their customers. In this respect, department store chain Debenhams is a case in point. The trio of investors who bought Debenhams in 2004 <a href="https://www.theguardian.com/business/2020/dec/01/debenhams-never-recovered-from-private-equity-ownership">tripled their money</a> in three years by cutting costs, discounting products and greatly increasing debt. With the Debenhams brand taken over <a href="https://www.bbc.co.uk/news/business-55793411">earlier in 2021</a> by online retailer Boohoo and the stores all closed, some would argue it never recovered from its private equity phase. </p>
<p>In the case of Morrisons and Asda, private-equity investors may be tempted to increase “value” by, as the vernacular goes, “stripping out” avoidable costs. This could mean fewer stores and reduced staff, plus potentially changing the quality of products. </p>
<p>Andrew Higginson, the Morrisons chief executive, has anticipated such likely concerns <a href="https://www.ft.com/content/cdd0219a-6acb-4e17-be9f-69c54c85e330">by stressing that</a> Fortress has committed to keeping the headquarters in Bradford, safeguarding company pensions and supporting its commitment to pay all staff at least £10 per hour. Fortress, which also took over Majestic Wine several years ago, added that it had no “material” plans for sale and leasebacks of Morrisons stores. </p>
<p>The trouble is that commitments to maintain things like staff pay and conditions can be dispensed with if market conditions are thought to dictate. Cynics would point out that comparable guarantees were made by American food behemoth Kraft in its <a href="https://www.theguardian.com/business/2010/jan/23/kraft-cadbury-fairtrade#:%7E:text=Kraft%20pledges%20to%20honour%20Cadbury's%20Fairtrade%20sourcing%20commitments,-This%20article%20is&text=Kraft%20has%20promised%20to%20honour,if%20its%20takeover%20goes%20ahead.">takeover of</a> chocolate maker Cadburys in 2010. After a decent interval, and once attentions had shifted elsewhere, <a href="https://www.herbertsmithfreehills.com/latest-thinking/statements-of-intention-under-the-uk-takeover-code-%E2%80%93-say-what-you-mean-and-do-what">numerous commitments</a> were <a href="https://www.independent.co.uk/voices/cadburys-chocolate-fairtrade-fair-trade-mark-farmers-kraft-american-brand-abandoned-promise-a7445826.html">dropped</a>.</p>
<p>Time will tell if the same thing happens this time around – whether or not Fortress is the ultimate buyer. It is hard not to fear that staff are under threat, and customers could be facing less choice and increased prices. The risk to local communities is obvious. If the worst comes to pass, we all end up poorer.</p>
<p>On the prospect of anything being done, it is hard to see the government intervening in any takeover by any private equity investor. In the case of the Asda deal, the UK competition regulator <a href="https://www.independent.co.uk/business/competition-watchdog-approves-new-asda-owners-petrol-station-sale-b1867025.html">did raise concerns</a> that the new owner was also the owner of some Asda petrol stations. It agreed to the deal after the Issa brothers offered to sell some forecourts. </p>
<p>It is worth noting, however, that a proposed 2019 merger between Asda and Sainsbury’s <a href="https://www.foodnavigator.com/Article/2019/04/25/Watchdog-blocks-Sainsbury-s-Asda-merger-This-deal-would-lead-to-increased-prices-reduced-quality">was blocked</a> by the regulator, which stated that: “Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.” </p>
<p>Since the same concerns could equally be levelled at private equity, it is surely time someone asked why it never is.</p><img src="https://counter.theconversation.com/content/163925/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven McCabe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Reassurances around the takeover of UK’s fourth largest supermarket chain come with a strong sense of deja vu.Steven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1160832019-04-29T12:14:20Z2019-04-29T12:14:20ZShopping trends mean blocking the big Sainsbury’s-Asda merger may not protect customers<figure><img src="https://images.theconversation.com/files/271449/original/file-20190429-194620-ka977c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Staying separate.</span> <span class="attribution"><span class="source">John David Photography / Shutterstock.com</span></span></figcaption></figure><p>The proposed merger of supermarkets Sainsbury’s and Asda is now off the table as the regulator <a href="https://theconversation.com/sainsburys-asda-merger-failed-big-bet-has-serious-strategic-consequences-116012">has ruled against it</a>, saying it would lead to higher prices for consumers. The merger would have created the largest supermarket in the UK in an already concentrated market where the market shares of the top four players add up to <a href="https://www.kantarworldpanel.com/en/grocery-market-share/great-britain">a whopping 68% of the total market</a>. </p>
<p>Under any other circumstance, it would have made a lot of sense to block a merger of this scale. But given the conditions at this time in food retail, stopping this deal won’t necessarily protect customers. There is fierce competition in the industry, ruling out the possibility of increasing prices.</p>
<p>Supermarkets have been hit by <a href="https://www.about.sainsburys.co.uk/investors/annual-report-2018">multiple disruptions</a> in the past couple of decades, and the traditional way of shopping for groceries in big stores has been declining, replaced by discount stores, convenience stores, and online shopping.</p>
<p>The biggest challenge comes from the new discounters like Aldi and Lidl. They put even the traditional UK discounters such as Wal-Mart’s Asda to shame with their hard-to-match low prices. The Aldi phenomenon has swept through the UK. It has opened numerous new stores since 1990, luring customers with aggressive prices, good quality products, and advertising that trumpets blunt price comparisons. </p>
<p>Among several factors that drive Aldi’s cost advantage is its no-frills, small store format, stocked mostly with own brand products. This gives the company the ability to work with and negotiate the best prices <a href="https://www.npr.org/sections/thesalt/2017/09/27/552384150/discount-grocers-aldi-and-lidl-give-u-s-stores-a-run-for-their-money?t=1556369139095">from their long-term suppliers</a>. Further savings are made by having customers do some of the work, such as opening boxes and taking carts back. And the product selection is very limited, with one or two choices for most products. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Supermarket disruptors.</span>
<span class="attribution"><span class="source">JFs Pic S. T / Shutterstock.com</span></span>
</figcaption>
</figure>
<p>These days, Aldi and Lidl are no longer underdogs. Together, they command over 13% of the market, as the <a href="https://www.kantarworldpanel.com/en/grocery-market-share/great-britain">fifth- and seventh-biggest players in UK</a>. Their model is the antithesis of the mainstream supermarket business model, which is based on a large variety of products, alternative brand choices, customer service, and in some cases store ambience and experience. </p>
<h2>Changing habits</h2>
<p>While the traditional supermarket model hasn’t entirely lost its appeal, consumer expectations and shopping habits have changed in multiple ways. Today’s consumers prefer lower prices, but they also want high quality fresh produce and other products. They value convenience in shopping, but they also shop in multiple stores to get what they want. Increasing numbers are shopping online. But supermarkets still haven’t figured out the best way to respond to these disruptive changes. </p>
<p>When customers shop more locally and frequently, the large-format supermarkets outside of town and city centres no longer generate enough sales. The grocery business is a high-volume, low-margin trade where steady customer traffic matters. Without high sales volume and fast inventory turnover, supermarkets cannot cover their “fixed costs” like rent, technology and staff. Opening new convenience stores helps to reclaim the lost business but doesn’t compensate for diminishing large store margins. </p>
<p>When it comes to the steady growth of online food shopping, all major players offer this, but they often rely on the click-and-collect method, which has marginal profitability due to added labour costs. Highly-automated fulfilment centres are more efficient, but they require substantial investments upfront. </p>
<p>Adding up the loss of sales to convenience, discounters, and online, many traditional UK food stores are suffering from reduced profitability. </p>
<h2>Bold and risky</h2>
<p>Enter the Sainsbury’s-Asda merger. This was a <a href="https://theconversation.com/sainsburys-and-asda-merger-its-all-about-market-share-95822">bold and risky move</a> as it would have increased both companies’ exposure to retail disruption. But it would have also given the merged companies a stronger base to respond to discounters and the online shopping trend.</p>
<p>Food manufacturing firms have much <a href="https://www.forbes.com/sites/sageworks/2017/09/24/these-industries-generate-the-lowest-profit-margins/#6e91c608f49d">better profit margins</a> than supermarkets. So increasing their power against key suppliers is one way supermarkets are trying to survive. While this may not have enabled either company to match Aldi-Lidl prices, they could have narrowed the gap.</p>
<p>Sainsbury’s also planned to leverage Asda stores for Argos pickups, a catalogue retailer owned by Sainsbury’s. This would have helped them better use their big stores, while expanding the reach of Argos. Plus, a combined response to online sales would have created significant economies of scale when investing in the necessary infrastructure to meet customer demand for online shopping.</p>
<p>So blocking the Sainsbury’s-Asda deal may strengthen the hands of Aldi and Lidl. Perhaps that’s good news as they can grow and make their low prices available to more customers. But there may be other implications. </p>
<p>Customers today enjoy having the luxury of shopping at different types of stores. A rapid rise of new discounters and online models may not allow enough time for supermarkets to adapt and traditional store options may fade away as a result, reducing options for consumers in the future. </p>
<p>Even if they survive, an increasingly singular focus on price competitiveness and cost cutting can have other consequences. It can harm farmers and food producers with little power to negotiate, leading to the loss of small and midsize farms or putting added pressure on the environment and farm worker health. Plus, food quality may suffer under pressure to rapidly cut costs. </p>
<p>Aldi and Lidl have managed to achieve good environmental standards along with efficiency by working with their suppliers over a long period of a time, albeit for a relatively narrow range of products. If other players are pushed to match the cost advantages for a substantially larger range of products in a short time period, compromises in other important areas can happen. So more competition may not turn out to be better for consumers after all.</p><img src="https://counter.theconversation.com/content/116083/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yasemin Kor is affiliated with Cambridge Global Food Security Initiative. </span></em></p>Supermarkets have been hit by multiple disruptions in the past couple of decades and they are struggling to survive.Yasemin Kor, Beckwith Professor of Management Studies, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1160122019-04-25T15:25:22Z2019-04-25T15:25:22ZSainsbury’s-Asda merger: failed big bet has serious strategic consequences<figure><img src="https://images.theconversation.com/files/270969/original/file-20190425-121245-1ufxku2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The two supermarkets will not become one.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/flint-uk-may-1-2018-asda-1081695164?src=eIrzcUMDvdQTjTtFwY3zuA-1-0">John David Photography / Shutterstock.com</a></span></figcaption></figure><p>The problem with big bets is that sometimes they don’t pay off. While a lot of attention is often paid to successful mergers and acquisitions (M&A) deals, little attention is paid to the dark side of M&A – what happens to a company’s strategy when a deal fails. The UK competition watchdog’s <a href="https://www.bbc.co.uk/news/business-48048596">decision</a> to block Sainsbury and Asda from merging will have big consequences for both supermarkets.</p>
<p>The proposed £10 billion merger was designed to solve a pressing strategic problem in the UK: an increasingly competitive industry where the winners are aggressive discounters (Aldi and Lidl) and, to some extent, the premium niche competitors like Waitrose and M&S. For the giant supermarkets, Sainsbury’s, Tesco, Morrisons, Asda, the recent past has been marked by heroic struggles to achieve some profitability and find growth in a slow market. </p>
<p>With the centre ground under constant performance pressure, Sainsbury’s and Asda’s decision to merge made perfect sense. It might also have provided some protection against current threats presented by new entrant Amazon. Through the merger they would be able to significantly reduce their costs, allowing them, in theory, to pass on price reductions to consumers. But the regulator took the view that the combined group, with around 30% of the market, might wield monopolistic power that could lead to an increase in prices and reduced customer choice.</p>
<h2>What next?</h2>
<p>Following the regulator’s decision, Sainsbury’s share price fell 7%. But when the merger was originally announced, Sainsbury’s share price <a href="https://www.about.sainsburys.co.uk/investors/share-price-information/chart">soared to 314p</a>. This means that the share price fall to 212p is a 38% reduction. The market is clearly judging the deal a failure. And, as the share price is below Sainsbury’s pre-deal share price of 266p, the market is also judging Sainsbury’s to be in a worse strategic position than it was before merger talks. </p>
<p>The first strategic problem is that Mike Coupe, Sainsbury’s CEO, has spent a lot of time and effort convincing the markets that the merger was the best way forwards for the company. Now this strategy is in ruins, there is a problem that arguing for another strategy will most likely seem second best, so garnering investor support could be difficult. </p>
<p>Big deals need big commitment from CEOs. Unfortunately, Coupe will have suffered reputational damage by failing to achieve the deal, and an unfortunate media slip following news of the merger (he was <a href="https://www.youtube.com/watch?v=I3q-zBLZEW4">caught singing</a> “We’re in the money”), now seems like hubris.</p>
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<p>Nonetheless, from a strategic point of view, Sainsbury’s could look for other M&A deal opportunities in the supermarket sector, using the same logic of efficiency gains and market power benefits. The main problem though is that there are no large targets available. And, even if they might become available in some shape or form, Sainsbury’s would most likely run into regulatory constraints again and also face significant restructuring costs. </p>
<p>Sainsbury’s could make small acquisitions, but due to its size, these deals would make next to no difference to the group’s overall performance. Even if the small acquisitions are innovative players, it would still take a long time before they really could make a significant impression. </p>
<p>Another strategic option is to grow overseas through a major cross-border M&A. But the supermarkets have generally had rather poor experiences with international expansion, with many <a href="https://www.theguardian.com/business/2013/aug/11/tesco-retreat-overseas-rotten-returns">destroying value</a>. Other alliances might help reduce the basic problem of reducing costs, but it is difficult to see how they can consistently close the gap with discounters. It might also consider buying outside of the industry as a defensive hedge to change, but this is risky territory indeed.</p>
<p>Sainsbury’s big size means it needs to do something bold. But, having had its deal rejected, there is a risk that it will revert to incrementalism. This may be too little too late and would not really address the pressures of a squeezed supply chain, consumers requiring even lower prices and major new entrants forcing the pace of change. Plus, there’s also a risk that Asda might be acquired by another competitor (it is owned by Walmart so its future will depend on the US giant’s plans). This would further weaken Sainsbury’s strategic position.</p>
<p>While there are always opportunities for further cost reductions, Sainsbury is already well run so these gains will be marginal, hard to achieve and, if pursued too aggressively, run the risk of changing the nature of the business as it is. Rather than being whittled away by a thousand cuts, Sainsbury’s may alternatively look to transform itself rather than trying to preserve its current way of competing. </p>
<p>The industry as a whole fears Amazon taking over. Just the announcement of Amazon entering the industry, <a href="https://theconversation.com/will-amazon-do-to-the-grocery-industry-what-it-did-to-ecommerce-96874">when it bought Whole Foods in 2017</a>, caused share prices to fall. Maybe in the face of the revolution in digital strategy, where the largest operators in traditional industries such as accommodation (Airbnb), taxis (Uber), retail (Amazon), don’t own large amounts of assets, Sainsbury’s should rethink the supermarket business. Perhaps its largest assets – the megastores and car parks – are also its biggest source of rigidity. Responding more rapidly to a changing environment and staying in tune with changing customer demands may require a different sort of business model.</p><img src="https://counter.theconversation.com/content/116012/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Duncan Angwin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sainsbury’s faces tough times ahead following the blocking of its merger with Asda.Duncan Angwin, Sir Roland Smith Professor in Strategic Management, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/959822018-05-03T10:53:26Z2018-05-03T10:53:26ZKarl Marx wouldn’t agree that worker power has been killed by the 21st century<figure><img src="https://images.theconversation.com/files/217345/original/file-20180502-153895-1lo8if4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/germany-circa-1975-karl-marx-18181883-99218681?src=GA0u-MxgZ2P4Bpfanb4bfw-1-11">Georgios Kolidas</a></span></figcaption></figure><p>It is remarkable for an economic thinker and political activist that 200 years after their birth, millions are still avidly discussing their work. Yet Karl Marx’s <a href="https://www.marxists.org/archive/marx/works/1867-c1/">Capital</a> continues to influence every new generation.</p>
<p>In an era of anti-globalisation protests and the <a href="http://www.naomiklein.org/shock-doctrine">movement</a> against the 1%, Marx’s analysis continues to be relevant – he explains how the capitalist system goes hand in hand with aggressive competition and innovation, and why this leads to poverty, crisis and eventually revolution. He brilliantly describes growing wealth, the worsening conditions of labour and the necessity for a different society. </p>
<p>These insights apply as much to the 21st century as the 19th. We see the same capitalist landscape of old incumbents constantly under pressure from new challengers – and also the same destructiveness. </p>
<p>Some political scientists <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674006713&content=reviews">argue that</a> the internet and particularly the <a href="https://theconversation.com/why-the-idea-of-good-work-in-a-gig-economy-remains-a-distant-ideal-92117">gig economy</a> have fundamentally changed the nature of work. Capitalism has become so dominant over labour, they argue, that old bonds between workers such as class and solidarity are increasingly meaningless. </p>
<p>On this analysis, worker action and revolution are off the agenda. And jobs likely to get automated in future – that’s 80% of posts in transport, warehousing and retail logistics <a href="https://www.oxfordmartin.ox.ac.uk/publications/view/2581">according to one prediction</a> – are seen as part of the same trend. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=464&fit=crop&dpr=1 600w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=464&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=464&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=583&fit=crop&dpr=1 754w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=583&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=583&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Master and servant.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/human-business-robotic-hand-concept-robot-635324807?src=7xTDDwvhyU-WUninJoEOig-1-34">zenzen</a></span>
</figcaption>
</figure>
<p>But Marx had a different perspective. Instead of thinking class solidarity would be destroyed in this way, he <a href="https://bookmarksbookshop.co.uk/view/38500/Deciphering+Capital%3A+Marx%27s+Capital+and+its+destiny">thought</a> capitalism recreated the relationship between labour and capital in ever deeper forms. <a href="https://www.marxists.org/archive/marx/works/1865/value-price-profit/">Commenting on</a> how machinery being introduced in his era led to skilled jobs being replaced by unskilled ones, he said: </p>
<blockquote>
<p>The working class gains recruits from the higher strata of society: a mass of petty industrialists and small rentiers are hurled down into its ranks and have nothing better to do than urgently stretch out their arms alongside those of the workers. Thus a forest of uplifted arms demanding work becomes ever thicker, while the arms themselves become ever thinner.</p>
</blockquote>
<h2>Inherent instability</h2>
<p>For Marx, the very dynamism that saw capitalism expand also caused its downfall. Companies have no choice, he believed, but to compete with one another in a war for survival. They seek to defeat their rivals by lowering the prices of their goods – thus, for example, a computer today is far cheaper than it was yesterday. </p>
<p>But this means that there is a tendency towards a falling rate of profit for each player. To offset this and to make their goods even cheaper, the capitalists either become more concentrated through mergers and acquisitions, or by driving down wages through deskilling jobs and making people redundant. As Marx <a href="https://www.marxists.org/archive/marx/works/1865/value-price-profit/">wrote</a>, it becomes a competition between “the generalists, the capitalists … as to who can discharge most soldiers of industry”. </p>
<p>And this, he thought, was the inherent problem. <a href="https://publishing.cdlib.org/ucpressebooks/view?docId=ft367nb2h4;query=;brand=ucpress">Like</a> the classic economists of his time, Marx believed in a labour theory of value – the idea that the value of a product should be based on the amount of labour that has gone into it. The more the capitalists sought to protect their profitability, the more they undermined the value of the products they were creating with labour power. </p>
<p>The Sainsbury/ASDA merger is the perfect example. These two supermarkets’ <a href="https://theconversation.com/sainsburys-and-asda-merger-its-all-about-market-share-95822">motivation</a> is not the high levels of profits of both companies but the opposite – the squeeze on profits both companies face from Amazon on the one hand and low-cost retailers like Lidl and Aldi on the other. </p>
<p>As the battle for thinner and thinner profits wears on, Marx argued that the capitalists become ever more estranged from a burgeoning working class. The workers are both increasingly frustrated as jobs became more and more stultifying, and facing rising levels of unemployment. In time, competition to accumulate more wealth creates systemic crisis. </p>
<p>Companies like Deliveroo and Uber are not really a means of thwarting worker power at all – they <a href="https://socialistworker.co.uk/art/43275/Strikes+deliver+victory+and+show+speedy+action+works">just lead</a> to collective action by workers seeking to address the imbalance between capital and labour. </p>
<p>Marx therefore helps us make sense of modern power relations after all. Then, as now, there is no contradiction between capitalism and crisis: it is a process of historical development and economic transition within the system. </p>
<p>I would argue that the lasting legacy of Marx 200 years after his birth comes from the conclusion he and Friedrich Engels drew in their 1848 publication <a href="https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch04.htm">The Communist Manfesto</a>:</p>
<blockquote>
<p>The proletarians have nothing to lose but their chains. They have a world to win. Workers of all countries unite.</p>
</blockquote><img src="https://counter.theconversation.com/content/95982/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carlo Morelli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some say the gig economy is capitalism’s final victory, but maybe it’s not.Carlo Morelli, Senior Lecturer in Business and Economic History, University of DundeeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/958222018-05-01T11:00:03Z2018-05-01T11:00:03ZSainsbury’s and Asda merger: it’s all about market share<figure><img src="https://images.theconversation.com/files/217020/original/file-20180501-135810-1vxqigp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Ceri Breeze / Shutterstock.com</span></span></figcaption></figure><p>British retailers Sainsbury’s and Asda have agreed to a £13 billion merger. They plan to keep their brands separate so retailers may not notice a difference. But, together, the two will be the biggest player in the grocery market and the move would mark a significant shift for the supermarket industry, which faces a number of challenges. </p>
<p>This merger is all about market share. It follows hot on the heels of supermarket giant Tesco’s £4 billion takeover of Booker, the country’s largest wholesaler <a href="https://www.telegraph.co.uk/business/2018/03/05/tesco-completes-4bn-takeover-booker/">in March 2018</a>. This created a food and drink powerhouse with a market capitalisation of nearly £20 billion. It put Tesco way ahead of its rivals in terms of revenue and market share and clearly acted as a wake-up call to them. Then there is the growing threat of Amazon, which <a href="https://theconversation.com/amazon-dives-into-groceries-with-whole-foods-five-questions-answered-79638">bought Whole Foods last year</a> and is <a href="https://www.theguardian.com/business/2016/nov/16/morrisons-expands-amazon-deal-offering-delivery-in-an-hour">working with supermarket Morrisons</a> to deliver in parts of the UK.</p>
<p>The market has seen rapid growth and changes over the last decade and organic growth for either Sainsbury’s or Asda would be very difficult. Both businesses suffer from a legacy of large out of town stores, which are less popular with consumers. They both need to up their games to improve their products, online services, and capitalise on how and where people like to shop. </p>
<p>The obvious solution is to grow their customer base and revenues, while cutting their margins, through merging. Together Sainsbury’s and Asda have more than 31.4% of the grocery market, making them the market leaders. Their combined revenues are in the <a href="https://news.sky.com/story/sainsburys-and-asda-agree-to-join-forces-11353408">region of £51 billion</a> (based on 2017 figures).</p>
<p>Meanwhile, Walmart, which owns Asda, can let go of its interest in the UK market and focus on its base in the US which is <a href="https://www.retaildive.com/news/walmart-is-streamlining-us-operations/504828/">facing various challenges</a>. Walmart will receive nearly £3 billion in cash and 42% of the combined business, in return for selling Asda. </p>
<h2>Benefits for all?</h2>
<p>Like any merger and acquisition, this will bring strength to the balance sheet through capitalising on the strengths of both businesses. Asda is much more popular in the north of the country, whereas Sainsbury’s is more popular in the south. </p>
<p>Argos, which was bought by Sainsbury’s in 2016, will also benefit. The catalogue retail chain has a strong online offering, which should help Asda in the same way that it has already helped Sainsbury’s. In turn, Asda, which is also big in non-food products, will play host to Argos concessions in its stores.</p>
<p>The merger would give the group more than 2,800 stores. Executives <a href="https://www.telegraph.co.uk/business/2018/04/30/sainsburys-asda-promise-price-cuts-no-store-closures-mega-merger/">have said</a> that none will be shut as a result of the merger but they are planning to save £500m through “operational efficiencies” and by opening Argos concessions in Asda stores. This means that suppliers are likely to be effected.</p>
<p>Customers, however, are likely to benefit from this and see lower prices, more choice and improvements both in store and online. Sainsbury’s CEO, Mike Coupe, who will lead the combined group, <a href="http://www.bbc.co.uk/news/business-43945254">said</a> that prices of common products should drop by around 10%. </p>
<p>By joining forces with Asda, Sainsbury’s will be hoping to compete with the likes of Aldi and Lidl, which have changed the game for supermarkets in recent years. The combined business will be able to up their game on pricing of common products, negotiate for lower pricing with competitive suppliers and improve their online business. </p>
<p>Coupe has <a href="https://www.telegraph.co.uk/business/2018/04/30/sainsburys-boss-mike-coupe-man-become-king-uk-retail/">vast experience in the industry</a> so is well positioned to lead the new supermarket giant. He has experience at Unilever, Tesco, Iceland and Asda so understands the culture of both firms. And he seems confident of the new giant’s prospects.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"991004380018167808"}"></div></p>
<p>But the deal is not yet done. Because of the size of the two supermarkets, the merger requires regulatory approval from the Competition and Markets Authority (CMA). This could be a challenge as both business are closely related which would create a monopoly over the grocery sales. It may well come with demands to close stores. By comparison, the Tesco-Booker deal was <a href="https://www.independent.co.uk/news/business/news/tesco-booker-takeover-deal-cma-competition-regulator-supermarket-wholesale-a8119826.html">approved by the CMA</a>, which pointed out that the two companies did not compete “head-to-head” in most of their activities.</p>
<p>The competition in the retail sector is as fierce as ever. The merger between Sainsbury’s and Asda shows the need to stay competitive – especially following Tesco’s growth and Amazon moving into the industry. To stay afloat, businesses must lower their prices, keep loyalty, improve convenience and innovate to better attract and retain their customers. The latest merger follows industry trends and is a clear indication that other deals are likely as stores seek to keep up with the market.</p><img src="https://counter.theconversation.com/content/95822/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Naaguesh Appadu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Facing stiff competition, the obvious solution is for Sainsbury’s and Asda to grow their customer base and revenues, while cutting their margins, through a merger.Naaguesh Appadu, Research Fellow, M&A Research Centre, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/546062016-02-15T09:34:41Z2016-02-15T09:34:41ZWonky veg and ugly fruit are making a comeback – here’s why<figure><img src="https://images.theconversation.com/files/111212/original/image-20160211-29202-1h83ol4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">EQRoy / shutterstock</span></span></figcaption></figure><p>Do the same rules that govern human attraction also apply to our choices of fruit and vegetables? Plenty of evidence suggests we do look for similar traits in both people and produce, and our perceptions of food are clearly affected by what it looks like.</p>
<p>Each year we waste 1.3 billion tonnes of food worldwide, a third <a href="http://www.fao.org/save-food/resources/keyfindings/en/">of the total produced</a>. This unbelievable figure is partly made up of “ugly” fruit and vegetables – those that are perfectly edible but rejected by supermarkets due to their blemished skin or unusual shape. </p>
<p>In March 2015 I opened a pop-up <a href="http://www.bbc.co.uk/news/uk-wales-north-west-wales-31737280">Ugly Food Shop</a> in a mission to change perceptions of ugly food. I became interested in why it was ever rejected in the first place, and whether supermarkets either dictated or answered to a desire for perfect veg. </p>
<p>Since then, ugly foods seem to be making a comeback. A flurry of excitement accompanied the launch of British supermarket Asda’s “<a href="http://www.independent.co.uk/news/uk/home-news/asda-to-become-first-uk-supermarket-to-sell-wonky-veg-boxes-a6857856.html">wonky veg box</a>” which, for just £3.50 (US$5), promises to feed a family of four for a week. So have we always cared about the shapeliness of our bananas, or are we only now becoming more receptive to the idea of bendy vegetables?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/111341/original/image-20160212-29180-1rh5oqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Because ugly food is beautiful on the inside.</span>
<span class="attribution"><a class="source" href="https://twitter.com/MaiePeetri/status/577841313854431232">Maie Peetri / twitter</a></span>
</figcaption>
</figure>
<p>Theories of human attraction suggest beautiful people are generally considered to be more honest, more social and <a href="http://psycnet.apa.org/journals/psp/24/3/285/">more successful</a>. Ultimately, we seem to be programmed to find attractive people more likeable – even newborn babies spend more time <a href="http://onlinelibrary.wiley.com/store/10.1207/S15327078IN0102_8/asset/S15327078IN0102_8.pdf?v=1&t=ikiayynw&s=420af3428d312231affd9bd11b8b4b0271aaabb7">gazing at the prettiest among us</a>. Symmetry is critical here, as symmetrical faces are easier to visually process and signify <a href="http://rspb.royalsocietypublishing.org/content/270/1526/1759.short">genetic health</a>. From an evolutionary perspective, selecting a mate with even features is a safer bet, as asymmetries can be caused by disease and infections during physical development.</p>
<p>Although it makes sense that we would naturally select produce that is the most likely to be free from disease, in reality imperfections in the shape of fruit and veg have no real bearing on their nutritional content or taste, and no evolutionary advantage.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/111329/original/image-20160212-29198-18mp915.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Celeriac is often overlooked for sexier vegetables.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/nauright/16368209078/">Romana Klee</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>An alternative explanation is that we “eat with our eyes”. Colour has a huge impact on how we perceive taste, with multiple studies demonstrating how a variety of learned and natural responses can influence the communication between our eyes and brain to determine taste. For example, professional wine tasters admitted to being a little suspicious while drinking white wine visually disguised as a full-bodied red, however they ultimately trusted their retinas over their taste-buds, until the <a href="http://www.sciencedirect.com/science/article/pii/S0963996909001884">trickery was revealed</a>. Equally, altering the colour of vanilla ice cream can determine it’s reported taste, with brown vanilla ice cream described as chocolate, pink as strawberry, and <a href="http://flavourjournal.biomedcentral.com/articles/10.1186/s13411-015-0031-3">green as mint</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/111172/original/image-20160211-29202-1ox6omj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">I’ll have a scoop of brown and a scoop of purple, please.</span>
<span class="attribution"><span class="source">CyberEak / shutterstock</span></span>
</figcaption>
</figure>
<p>Given these findings, it is understandable that it will always be the disfigured potatoes that are left on the shelf. However throwing away a few lonely spuds has nothing on the millions of tonnes of fruit and vegetables which are denied even the chance to make it through the supermarket doors. </p>
<p>Thanks to global abundance and international trade, supermarkets can now be more selective. Much of the food deemed ugly is damaged on long boat trips – literally a fruitless journey – while ugly produce grown closer to home is also rejected, imposing harsh conditions on farmers. The needless waste of both imported and homegrown fruit and veg seems senseless; however if <a href="https://theconversation.com/our-favourite-fruits-come-in-thousands-of-varieties-but-no-supermarket-will-ever-sell-them-26840">consumers are unaware of it</a>, they can do nothing to change it.</p>
<p>Attitudes seem to be shifting though, thanks largely to <a href="http://www.bbc.co.uk/programmes/b06nzl5q">high-profile coverage</a> of massive food waste. Ugly food is becoming more popular, and social influence has a huge impact on our behaviour. Wonky veg can be rebranded to enhance that social influence, for instance our shop marketing campaign focused on “humanising” a team of unfortunate fruit and veg, giving consumers something to root for.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/HCSf9b_OW_w?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Stop the waste, enjoy the taste.</span></figcaption>
</figure>
<p>More than just fashion, the multiple benefits of “ugly” foods are admired as it is both cheap and helps to cut waste. The ugly comeback shows awareness and social influence can override a natural instinct to select symmetrical and unblemished fruit and veg. Whether this is a trend capable of withstanding the rise and fall of passing fancy, only time will tell. However in the meantime if we can cut waste and spend less, that definitely sounds appealing to me.</p><img src="https://counter.theconversation.com/content/54606/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rhi Willmot does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Humans are programmed to chose colourful, symmetrical food. But ugly alternatives are cheap and cut waste.Rhi Willmot, PhD Researcher in Behavioural and Positive Psychology, Bangor UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/511532015-11-26T15:42:23Z2015-11-26T15:42:23ZWhatever happened to ‘bans’ on GM produce in British supermarkets?<p>Once upon a time, UK retailers welcomed genetically modified (GM) foods. In the <a href="http://news.bbc.co.uk/onthisday/hi/dates/stories/february/5/newsid_4647000/4647390.stm">late 1990s</a>, Sainsbury’s and Safeway (since <a href="http://news.bbc.co.uk/1/hi/business/3542291.stm">purchased by</a> Morrisons) both offered GM tomato purée, which so far as I recall was the first such product made available in the UK. GM and non-GM cans of purée stood side by side on their shelves, the former <a href="http://www.tandfonline.com/doi/abs/10.4161/gmcr.18041#.VlWJHryoKu4">some 18% cheaper</a> per unit weight. The cans were conspicuously labelled and pamphlets explaining what GM was all about were to hand nearby. But when the stock ran out and it was time to re-order, the anti-GM food balloon had gone up and the product was discontinued.</p>
<p>The late 1990s and early 2000s in Britain was a period of intense back-and forth argument about GM. In 1999 Marks & Spencer <a href="http://www.thefreelibrary.com/M%26S+BANS+GM+FOODS.-a060402770">announced that</a> it was removing all GM foods from its shelves. (In a House of Lords inquiry at that time, M&S said their customers demanded it. When asked by their lordships how many customers that meant, it turned out to have been rather a small percentage. But those who positively wanted GM were, it seems, even fewer in number). </p>
<p>Sainsbury’s, then the second-largest chain in the UK after Tesco, <a href="http://news.bbc.co.uk/1/hi/uk/298229.stm">responded</a> only weeks later by saying it would guarantee that all of its own-brand products were GM-free. All the other retailers followed suit: the UK’s retail industry was to be GM-free – or was it?</p>
<p>In fact some GM products, though not many, were always to be found. Until 2004, when GM labelling became mandatory under <a href="http://www.gmo-compass.org/eng/regulation/labelling/93.new_labelling_laws_gm_products_eu.html">EU regulations</a>, it was difficult to identify them. With a label prescribed by law it obviously became easier, and every now and again, a variety of minor products turned up in this or that supermarket chain but did not last very long. </p>
<p>Yet one product which was always on sale, unlabelled before 2004 but properly indicating its GM source thereafter, was soya cooking oil. It can still be found – I spotted it in one of my local Sainsbury’s stores just a few weeks ago. The distributors told me some years ago that the advent of labelling had had no effect on sales. When I questioned a small shopkeeper selling the product, he had no idea that what he was selling was GM (“What’s that?”). Nor, it seems, had his customers.</p>
<h2>Feed fad</h2>
<p>Then there is the question of GM fodder for animals. Around the time of their own-brand GM-free commitments, retailers said that they would not sell any products from pigs or poultry that had been exposed to GM feeds. </p>
<p>This ban became a distinct red line that remained in place for a decade or so. Until, that is, when Asda became the first of <a href="http://www.telegraph.co.uk/foodanddrink/7852762/Supermarkets-selling-meat-from-animals-fed-GM-crops.html">the leading</a> UK supermarkets <a href="http://www.thesundaytimes.co.uk/sto/news/uk_news/Science/article329472.ece">to abandon</a> its commitment to eggs and poultry fed with GM in 2010. This greatly upset anti-GM campaigning groups, <a href="http://www.gmfreeze.org/news-releases/33/">who demanded</a> that Asda and other supermarkets “respond to public opinion” (as the anti-GM brigade saw it) by pledging to keep GM out of the nation’s meat and dairy. </p>
<p>But by then public opinion on the issue had become almost completely mute so far as I could see. So in 2012, Morrison’s <a href="http://www.thegrocer.co.uk/channels/supermarkets/morrisons/morrisons-gambles-on-gm-chicken-feed-shift/227510.article">did the same</a>: in neither case, as far as I am aware, was there any perceptible consumer reaction. By 2013, all the remaining UK supermarket chains, except Waitrose, <a href="http://www.thegrocer.co.uk/buying-and-supplying/categories/fresh/sainsburys-ms-and-the-co-op-follow-tescos-lead-on-gm-feed/238400.article">had followed suit</a>: GM-feed for pigs and poultry was no longer to be excluded. One or two newspapers noted this at the time but, once more, there appears to have been no noticeable consumer rejection of products from animals fed GM.</p>
<h2>Where we go from here</h2>
<p>And that is (almost) it. In 2014 it was <a href="http://www.dailymail.co.uk/news/article-2826108/Frankenstein-foods-slip-M-S-Anger-store-puts-GM-food-shelves-despite-opposed-engineered-products.html">reported that</a>, while Marks & Spencer still doesn’t use GM ingredients in its own-label products, it sold products from other brands which did contain GM soya or corn – these included teriyaki, ginger and hibachi sauces from the US brand TonTon and three flavours of Moravian Cookie. I checked at the time and found all of them were indeed on sale. Apart from own-brand, of course, GM ingredients can be found across the board in food products and should indeed be labelled as such. </p>
<p>That just leaves cotton – in clothing not in food. Some people have estimated that more than half the world’s cotton <a href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5A1ygCQjxeY">is GM</a>, so this is likely to be the case with products on sale in the UK. There is no obligation to label GM cotton so one cannot be sure, but nobody seems to ask and few seem to care. Every now and again, up pops an ad for some cotton product or other which is said to be made with organic cotton (and so <em>ipso facto</em> non-GM) but such examples are rare.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=421&fit=crop&dpr=1 600w, https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=421&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=421&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=529&fit=crop&dpr=1 754w, https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=529&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/102841/original/image-20151123-18233-2frjtg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=529&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Spot the difference.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&searchterm=cotton%20clothing&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=263492549">Eyes Wide</a></span>
</figcaption>
</figure>
<p>Though a few stalwarts keep up their anti-GM rhetoric, public interest in this subject has largely waned in my view. UK government policy is now <a href="http://www.theguardian.com/environment/2015/jan/13/gm-crops-to-be-fast-tracked-in-uk-following-eu-vote">openly pro-GM</a>. The devolved governments in <a href="http://www.bbc.co.uk/news/world-europe-34316778">Northern Ireland</a>, <a href="http://www.theguardian.com/environment/2015/aug/09/scotland-to-issue-formal-ban-on-genetically-modified-crops">Scotland</a> and <a href="http://sustainablepulse.com/2015/10/02/wales-joins-total-ban-on-gm-crops/">Wales</a> take a different view (as does <a href="https://theconversation.com/gm-crops-an-uneasy-truce-hangs-over-europe-48835">much of Europe</a>), but England has 87% of the UK’s total population. </p>
<p>Though one can never be quite sure, it does begin to look as though the GM issue will fade away in the fullness of time, in England at least, even if it takes a while. I suspect GM food and crops will become commonplace and the protesting community will veer off in another direction, chasing new demons. </p>
<p><em>Postscript</em>:</p>
<p>Having read this article, a colleague told me that he had in May 2015 undertaken a web search for GM-labelled products on sale in UK supermarkets. His list has been rechecked and updated to find that the five major UK supermarket chains are currently describing on their websites about 60 products labelled as containing GM-ingredients. Nine of them are pet foods manufactured in the UK. All the others are human food products apparently imported from North America or Israel. Several are to be found on the websites of more than one supermarket chain.</p>
<p><em>For more coverage of the debate around GM crops, <a href="https://theconversation.com/uk/topics/gm-food">click here</a>.</em></p><img src="https://counter.theconversation.com/content/51153/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Prof Moses is Chairman of CropGen, a public information organisation in the UK originally supported by the agricultural biotechnology industry. He consults to the Agricultural Biotechnology Council, and has received funding from the EU as coordinator of three projects to explore the public understanding of and consumer attitudes to agricultural biotechnology in a number of countries in the EU and elsewhere.</span></em></p>Since the heyday of retail bans on products containing genetically modified ingredients 15 years ago, the tide has been heading in the other direction.Vivian Moses, Visiting Professor of Biotechnology, King's College LondonLicensed as Creative Commons – attribution, no derivatives.