Sainsbury's & Asda: will it go ahead?

The supermarkets are playing a positive tune, but there is a long way to go.

Last Updated: 01 May 2018

If you haven't heard already, J Sainsbury has announced that it has ‘agreed terms’ for a £15bn deal to ‘combine’ with the Asda Group. Walmart (which currently owns Asda) will retain a 42% holding in the combination.

Although the two brands will remain seperate, Sainsbury's hopes the move will strengthen the group's position in a dynamic market by allowing it combine Asda's low-cost groceries and the George clothing brand with Sainsbury's traditionally higher end products and catalogue retailer Argos (which the chain purchased in 2016).

The man who is set to lead the new merged behemoth, Sainsbury's CEO Mike Coupe, has said that there will be no store closures and has all but promised consumers that there will be an overall reduction in prices - some by up to 10%.

However, given that the deal is not expected to be completed until autumn 2019, is it all a bit too soon for such confidence?

What type of deal will go ahead?

The deal is yet to be rubber stamped by the Sainsbury’s board, and the Competition and Markets Authority (CMA) has already announced plans to review the merger.

While the Sainsbury’s board is unlikely to pose much of a problem, convincing the watchdog that the move does not reduce ‘competition and choice for shoppers’ looks much harder - at least without having to close a number of stores.

After the merger, the group will have a joint 2,800 stores, £51bn combined revenues and a 59% share of the total UK retail market - with Tesco’s 27.6% and Morrison’s 10.4% market shares, the top three supermarket groups (no longer four) would account for nearly 70% of the total market. 

In 2004, Morrison’s was forced by the Office of Fair Trading to divest with 50 stores after it purchased the grocer Safeway amid similar market competition concerns - and that was in a much smaller deal.

If the CMA rule sales are necessary in this case, it could present a delicate dilemma. If too few are sold concerns regarding market dominance and concentrated monopolies are unlikely to go away, sell too many and one has to question the point of the deal in the first place. 

Sainsbury's pledge to reduce prices may help show benefit to the consumer, but this has been delivered with little detail and with no binding commitment.

So is there any hope?

Sainsbury’s will claim that this deal takes place within a very different market than the 2004 Safeway deal, and may argue that the rise of two well known German discounters and the seemingly endless growth of some company called Amazon has helped to create a much more varied and competitive marketplace.

It may also take hope from the fact that the CMA approved Tesco’s purchase of the wholesaler Booker in 2017, despite similar concerns that the retailer would have too much influence on the supply chain.

Only time can really tell, but one thing is certain: it’s going to be fascinating.

Image credit:  Chinnapong/Shutterstock


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