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Sainsbury’s and Asda merger – the bigger the better?

Phil Mullis

30 April 2018

Plans to merge two of the big four supermarkets were announced this weekend. But, whilst an Asda-Sainsbury’s merger could create a supermarket giant better for business and better for shareholders, will it be better for the customer?

Erosion of market share

Together, Asda and Sainsbury’s could take 31.4% of the market share, putting all other competitors on the back foot. But, in an environment where competition is fiercer than ever and customer loyalty is at an all-time low, something had to give.

This is not the first merger of its kind of course. If we cast our minds back to 2004 when Morrison’s purchased Safeway, it was a strategic move to bring northern-based Morrisons to a customer base in the south – Safeway gave Morrison’s greater reach.

Changing shopping habits

Thanks to technology, and the internet, customers are much more aware of price and value than ever before. Customers are also moving away from a big shop once a week to smaller, little-and-often purchases to suit a convenient lifestyle. As a result, customer loyalty is at an all-time-low, overshadowed by discounters such as Aldi and Lidl keeping the pressure on prices.

Location, location, location

If the demand is more for local convenience, the Asda-Sainsbury’s merger could open Asda up to the convenience market with Sainsbury’s Local. However, there is no doubt that some stores will need to close.

Sainsbury’s CEO, Mike Coupe claimed there will be next to no risk to store closures or staff cuts, but I can’t see how that can be sustainable. There would be too many areas of cross over – and you are not going to see two Asda stores next to each other. There is just too much retail space, and keeping all stores open would only lead to cannibalisation.

What’s more, creating synergies is one of the first places to look when it comes to mergers. Not only will closing stores limit locations, but it will save staff costs too. Staff are one of retailer biggest costs and against a backdrop of cheaper technology, it will be tempting to help keep the expense of running a big store estate to a minimum.

Saving graces

Recent retail sales statistics show growth is faster off the high street and more is being spent online. Having said that, online for grocery won’t ever be the same as much of the other sectors, due to touch and feel. Customers on the whole will still prefer to purchase fresh food themselves.

Future changes?

Whilst the merger will reduce the competition, it will not lead to a monopoly – and because of that I can see further mergers like this happening in future. Particularly as Aldi and Lidl are opening stores faster than any other, all the time keeping the focus on price.

Scaled back operations in Asda and Sainsbury’s will increase buying power, which could help keep prices low for customers, but there could be a heavy price to pay for suppliers further down the line.

If you’re a retailer looking to change the size of your operation, the Retail and Wholesale team at Wilkins Kennedy can advise how you could go about it. It doesn’t just happen to the major retailers – some brands come together to complement each other.

About Phil Mullis

Phil Mullis

Phil joined the firm in 2008, became a Partner in 2012 and heads up the Retail and Wholesale sector team for Wilkins Kennedy. Phil advises companies, predominately from retail, fast moving consumer goods (FMCG) and food brokerage companies. He is passionate about helping the small guy win out against the big guy with bottomless marketing budgets. It is fair to say that most people see Phil as an unnatural accountant – it’s not about the numbers for him, it’s about working with the people and helping them grow and realise the potential of their business.

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