The face of UK food retailing looks set to change rapidly. Previously, publicly listed market leaders were required to meet regulatory and reporting standards. But with the transition to becoming privately owned by private equity houses, one has to wonder if standards will remain at the same level?
Asda has already made the transition. Morrisons and Sainsburys could potentially be next with rumours circulating that even Tesco isn’t out of reach.
So will this change be positive or negative for the thousands of manufacturing sites in the private label supply chain? Every major retailer has private label brand standards with extensive requirements that meet: safety, legality and quality standards including responsible sourcing with sustainability.
The requirements on private label manufacturers are backed up by extensive auditing programs, product specifications and product surveillance etc. These requirements were developed over many years with long-term horizons.
However private equity businesses typically invest toward shorter term horizons. These may last only five years. In practice, they acquire the retailer’s assets and are looking to exit or sell their investment after those five years.
Here at QADEX we’ve seen many clients acquired by private equity businesses that’ve been very proactive at investing in technology to drive digital transformation and efficiency. These investments typically transpire early in the investment cycle with an intention to deliver improvements in the years prior to the sale.
But delivering sustainable improvement in food safety and quality is a long-term undertaking that requires ongoing investment – not to mention innovation.
At present, we’re undecided on whether private equity ownership of retailers will be a positive or a negative for food safety.
On one hand, private equity will seek to transform existing processes and workflows; keenly investing in digital transformation. However this will likely be only for the duration of their private ownership (averaging around five years).
On the other hand, anything that does not deliver tangible benefits and positive cash flow within five years will potentially be under invested.
It’s difficult to see if major investment in delivering sustainable supply chains will correlate with a positive cash flow over the next five years. Could this signal a rise in green washing?
We’d like to hear your thoughts.
How do you think private equity ownership of retailers will impact food safety?