Will private equity owned retailers impact supply chain sustainability initiatives?

By STAR Index

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 equity retailers owned by private equity houses, one has to wonder if standards, particularly in relation to supply chain sustainability initiatives, 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 requirements around supply chain sustainability under constant review and development.

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 in the shorter term. These investments may last only five years. In practice, they acquire the retailer’s assets and are looking to exit or sell their investment after that time.

Will private equity owned retailers impact supply chain sustainability initiatives?

The long and the short of it

Here at STAR Index we’ve seen many clients acquired by private equity businesses that have 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 supply chains is a long-term undertaking that requires ongoing investment, and certainly, innovation.

At present, we’re undecided on whether private equity ownership of retailers will be positive or negative for sustainable supply chains and consequently, the planet.

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. 

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 sustainable supply chain initiatives?

If you would like to explore how STAR Index can help your business, please Contact Us

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