The 'Big four' become the 'Big three'
Last week, J Sainsbury plc and Walmart Inc (owner of Asda) announced they had agreed terms in relation to a proposed combination of Sainsbury's and Asda to create one combined business.
Currently in the UK Sainsbury’s is the second (13.6% share) and Asda the third (12.7% share) largest supermarket behind Tesco (24.6% share), meaning a merger would create a new retail giant (Source: Kantar Worldpanel, 52 w/e 25/03/18) with a combined revenue of c.£51 billion for 2017 (Source: Sainsburys.co.uk).
In line with declining retailer share for Sainsbury’s and Asda, the reason cited for the merger has been increased competition in the retail sector (particularly from discounters) with supermarkets needing to keep up with significant and rapid change in customer shopping habits. Shoppers increasingly want better value, choice and convenience. Therefore, the intention of bringing Sainsbury's and Asda together is to allow a more competitive and resilient business that is better able to invest in price, quality, range and technology.
The impact on the market is still unclear but so far Sainsbury’s has communicated that:
- It will maintain both the Sainsbury's and Asda brands enabling them to still deliver to current customers as well as cater to new ones
- It will combine the current network (2,800 Sainsbury's, Asda and Argos stores) to create greater choice in terms of store formats and channels
- It has no plans for any Sainsbury's or Asda store closures as a result of the merger
- It expects to lower prices for customers by c.10% on many of the products customers buy regularly
- It plans to create significant growth opportunities for suppliers through developing differentiated product ranges and becoming more streamlined
With this news being hot off the press it means approval is still needed from the Competition and Markets Authority (CMA) before it is a done deal.
At this early stage it is unclear what this would mean for the industry. However, with no real detail on how price savings will be achieved, this may cause concerns for suppliers.
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Kim Malley, Senior Retail Insight Analyst
Kim.Malley@ahdb.org.uk, 024 7647 8852