Sainsbury’s merger talks mark end of supermarket big four
It is approaching a decade since Mike Coupe, then Sainsbury’s boss, was caught on a hot mic singing “we’re in the money” as his supermarket announced its impending takeover of rival grocer Asda.
He was forced to apologise for the outburst, which was caught on camera while he waited to be interviewed by ITV News. “This was an unguarded moment trying to compose myself before a TV interview,” he then explained. “It was an unfortunate choice of song, from the musical 42nd Street which I saw last year and I apologise if I have offended anyone.”
The moment later marked the beginning of the end for Sainsbury’s £7.3bn deal to take over Asda, which was eventually blocked by the Competition and Markets Authority (CMA) over fears it would restrict choice for British shoppers.
Years later, current Sainsbury’s chief executive Simon Roberts has been careful not to repeat his predecessor’s indiscretion.
The supermarket chain, the UK’s second-largest, walked away from talks over a merger with its smaller rival, Morrisons, in February this year and was careful not to breathe a word of the discussions.
Yet it is understood that the talks, first reported by Sky News, could yet resume in the future. This latest bout of consolidation comes at a very different moment for the UK’s grocery market.
Sainsbury’s seeks consolidation
Back in 2018, Asda was the UK’s third-largest supermarket chain and a deal to combine it with Sainsbury’s would have caused the new entity to leapfrog Tesco into the top spot.
The prospect of a brand new market leader appearing out of nowhere spooked the CMA, which said the deal could “result in a substantial lessening of competition”.
“We found extensive competition concerns which may be expected to lead to price rises or a worsening of quality, range or service for customers at either a national level or at individual stores,” the watchdog said.
Today, Asda remains in third place, but its combined market share with Sainsbury’s (26.7 per cent) would not be enough to catch Tesco (27.8 per cent). Less so Morrisons, the latest subject of takeover interest from the orange-liveried grocer, which is down in fifth place on 8.4 per cent of the market.
Several retail analysts have said that Morrisons is a better fit for Sainsbury’s, regardless of the CMA’s decision to block the Asda deal back in 2019.
Morrisons’s focus on fresh food and supply-chain provenance fits well with its prospective partner, while Asda has a more relentless focus on value, said independent retail analyst Richard Hyman. He added: “Asda doesn’t have a strong food culture in my view.”
‘Big four no longer exist’
Tesco, Sainsbury’s, Asda and Morrisons were once known as the ‘big four’ of the UK’s supermarket sector, but the former two have peeled away in recent years. This has left Asda and Morrisons battling intense competition from German discounters Aldi and Lidl.
The rapid rise of these two grocers has forced the CMA to change its definition. The watchdog has provisionally decided to classify Aldi and Lidl as “large grocery retailers,” subjecting them to the same land rules as the big four.
While Asda and Morrisons each seek turnarounds following private equity sales which loaded the grocers with billions of pounds of debt, the German discounters are snapping up market share.
“The big four no longer exist as they did in 2019,” said retail analyst Catherine Shuttleworth. “The rise of the discounters in market share terms and the changed ownership of both Asda and Morrisons has changed the market considerably.”
Aldi and Lidl’s rapid growth is one reason that the CMA might look more favourably on a merger between Sainsbury’s and Morrisons, it has been suggested, because their ascendance has widened competition in the sector.
Ged Futter, a former Asda buyer, told City AM that Sainsbury’s would be unlikely to have pursued talks with Morrisons if they were not confident that a deal would be nodded through. “Otherwise it’s a lot of money down the drain that could be spent on better things than lawyers,” he said.