Store wars: Sainsbury’s and Asda mega-merger heats up race to become Britain’s ultimate supermarket superpower
The race to become Britain’s ultimate supermarket superpower grew suddenly more interesting over the weekend as Sainsbury’s and Walmart-owned Asda revealed they are in merger talks to become Britain’s largest grocer.
The two supermarkets, which have both lost market share, are seeking to join forces in a bid to topple Tesco, the current market leader that completed its £4bn purchase of wholesaler Booker last month. Other factors behind the move include the phenomenal growth of German discounters Aldi and Lidl while Amazon’s increasingly bold move into grocery retail has led to a scramble for customers.
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The mega merger is a coup for Mike Coupe, the Sainsbury’s boss who only recently spearheaded the successful integration of Argos’ parent company and is rumoured to be in pole position to lead the combined group.
Coupe, a former Asda employee, is likely to see eye to eye with Asda boss Roger Burnley who has worked for Sainsbury’s in the past.
That said, Asda and Sainsbury’s possible walk down the aisle will come with its own drama. The deal will face scrutiny from the Competition and Markets Authority (CMA) which might force the combined group to sell off stores to reduce the stranglehold of the Big Four supermarkets. But any job losses as a result will not go down well, especially coming after Sainsbury’s announced thousands of job cuts earlier this year.
Investors won’t be made automatically happy by the sheer scale of the combined business. Coupe, Burnley and co. will need to prove that they can outdo competition by taking on the discounters at their own price-crunching game.
Analysts have also questioned whether the merger makes good business sense because the two brands lack synergy. Asda caters to customers on tight budgets whereas Sainsbury’s attracts more affluent shoppers. While Sainsbury’s is known for smaller convenience stores in and around the south east, Asda operates bigger supermarkets up north.
However, the deal goes to show that Aldi and Lidl aren’t the only disruptors in the sector and that supermarket giants have not lost their capacity to surprise. A tie-up between two major players may be the greatest disruption of all, at a stroke knocking Tesco off its top spot.
Political pressure for a full CMA investigation is inevitable and understandable, but if the deal goes ahead, regardless of remedies, the supermarket landscape will change dramatically.
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