The potential merger between Sainsbury’s and Asda – with talks already at an “advanced” stage – is a game changer for UK retailing.
A Sainsbury’s-Asda tie-up would make it even bigger than Tesco, with 31.4 per cent of the UK grocery market. Together the two biggest groups would have just short of 60 per cent of the market between them. And that raises a big question about whether such a move is good for customers. Unions will also be on the front foot with the potential for job losses, especially in back office functions.
Any merger is subject to approval from the Competition and Markets Authority and the CMA is certain to want to examine this in fine detail. In the late 1990s a much smaller planned tie-up between Asda and Safeway was blocked on competition grounds. And the general consensus has been that a minimum of four big operators is vital to ensure low prices for consumers.
Some will argue the playing field has changed. Lidl and Aldi have shown that low prices and high quality can be achieved, while Amazon is also looming as a new competitor in the grocery market. And, of course, retailers are operating on tight margins with consumer spending limited by economic uncertainty over Brexit, while larger outlets are now seen as unnecessary with a growth in convenience stores.
The desperation to grow market share is behind this. And neither of these players has a strong track record in recent years. Asda has been squeezed by the discounters while Sainsbury’s is neither cheap nor has the quality cachet enjoyed by Waitrose and M&S. So, a £10 billion merger is a shortcut to growth.
Sainsbury’s has already sought growth through acquisition with its purchase of Argos for £1.4 billion, a move some believe will “supercharge” its non-food business. It also bought loyalty scheme Nectar for £60m earlier this year.
But even retaining the two brands – and there is a good fit with Asda stronger in the north and Tesco in the south – the CMA will need convincing that its latest move, rather than being just smart business deal, is a genuine opportunity to offer the customer something new and better.