Sainsbury’s confirms plans to merge with rival Asda

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Sainsbury’s has confirmed its intention to merge with supermarket rival Asda.

The merger would see more than 2,800 Sainsbury’s, Asda and Argos stores - and several of the UK’s most-visited retail websites - trade under one combined business.

The deal, subject to approval by the Competition and Markets Authority (CMA) and shareholders, means Asda-owner Walmart would take a 42% stake in the combined business, valuing Asda at approximately £7.3bn. Sainsbury’s said both brands would be retained as part of the agreement.

In a statement, Sainsbury’s said the combined business will ”create a dynamic new player in UK retail with an outstanding breadth of products, delivered through multiple channels”.

Sainsbury’s also said the merger would allow both brands “to lower prices by up to 10%” on regularly-bought items, offering consumers ”more flexible ways to shop in stores and through digital channels”.

Sainsbury’s chief executive Mike Coupe said: “This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future. It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy. Having worked at Asda before Sainsbury’s, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”

Asda chief executive Roger Burnley said: “The combination of Asda and Sainsbury’s into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice. Asda will continue to be Asda, but by coming together with Sainsbury’s, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive. From my six years with Asda and ten years with Sainsbury’s, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together.”

Commenting on the merger, Association of Convenience Stores (ACS) chief executive James Lowman said: “Convenience retailers will be thinking about the knock-on effect of a Sainsbury’s/Asda merger on their businesses and on this sector.

”What will be the strategy for the Sainsbury’s Local convenience stores, and will the combined business look to engage with independents through a wholesale or franchise model – something Sainsbury’s has looked at in recent months? What will happen to buying power in the grocery market, and how will this impact on suppliers and on smaller retailers and wholesalers? What will be the implications for the fuel retailing market from these two large fuel retailers coming together?”

He added: “The Competition and Markets Authority will look at this merger and needs to consider these questions as part of that inquiry. Consumers win when there is vibrant competition and choice, and people increasingly fulfil their shopping needs through a variety of large and small stores, online shopping and eating out of the home. The CMA needs to think carefully about these changing shopping behaviours and consider the full implications of this deal.”

Tesco shareholder and founder of Latitude Investment Management, Freddie Lait, said the Sainsbury’s/Asda deal could add value to the Tesco value proposition.

“The new entity will be forced to sell or close some stores, which will benefit Tesco and Morrisons, while causing disruption to the new business,” he said. ”More concentrated market structures tend to derive greater aggregate profit pools so, in the medium term, we expect this to be a supply side tailwind for the sector; Tesco has widened its pricing gap versus its peers over the past few years so any benefit from deal synergies is required just to ease the pricing gap; [and] the deal will take at least a year to close, through which period Tesco will be able to further demonstrate the newfound resilience of their business model, as well as seeing growth upside from the Booker integration.”

Catherine Shuttleworth, ceo of shopper and retail marketing agency Savvy, said: “We were always expecting something to happen to consolidate the grocery market.

”The middle ground has been squeezed the most by the inevitable march and expandability of the discounters, a reinvigorated Tesco with Booker under its wing is less arrogant and more relevant than with support from suppliers and conversion with shoppers, so the potential of Sainsbury’s and Asda joining forces creates a new dimension for the UK grocery market.” 

Readers' comments (4)

  • Terrible news. How long before just one company owns everything and the consumer has no choice at all? The future is grim.

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  • Well consolidation breeds consolidation, the whole world is changing Terry before our eyes not just our sector...it wont be long before everyone works for corporation A,B or C. Quite a few years ago when I was a young student at university we studied this, it was called corporate communism. If you fancy a depressing read look it up along with the 'information society'

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  • This should never be allowed to happen but we all know it will. The Tesco/Booker deal paved the way for this merger and I'm sure there will be many more to come over the coming years.

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  • I think the critics of consolidation may be a little harsh in their criticism before looking at the facts and getting all nostalgic about how wonderful the wholesale sector was with the retailers before consolidation went into overdrive triggered by Tesco/Booker merger and if only they could turn the clock back?.

    The reality is very different in that the retail sector was suffering from poor service from their supplier / wholesaler and the rot had set in long before consolidation became the buzz word with average to appalling balance sheets and struggling symbols who could not meet spiralling costs whilst trying to keep up with market demands in terms of quality of fruit & veg, chill and all the other demands todays customers were making on the sector. The deflation in the sector like bread and milk retailing cheaper than five years ago in real terms did not help their cash margin either.

    I accept the rather sad prediction of “corporate communism “ by Jaded Retailer but that of course is a result of how capitalism works with no checks & balances from the government and with the market racing to the gutter on price and inevitably impacting lesser players in the market. That in turn led to protecting profit by the big four who felt threatened by the German discounters (Aldi & Lidl). When the market is saturated its inevitable that nobody is making any money and the customers were fooled into thinking that you could buy groceries cheap for ever whilst maintaining quality, which of course is nonsense. Something had to give. As we know the main objective of any CEO is to make more money for their shareholders without moralising the consequences, harsh it may sound. However I feel we have a great future in the retail sector in general as the bar has been set higher in terms of quality of supply chain and which can only mean a good thing for the retail community going forward.

    Arjan Mehr Londis Bracknell

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