The 'Big four' become the 'Big three'

Monday, 30 April 2018

On April 30 2018, 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 are the second (13.6% share) and Asda the third (12.7% share) largest supermarkets 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 are increasingly wanting 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. 

Source: Kantar Worldpanel, 52 w/e

The impact on the market is still unclear but so far Sainsbury’s have communicated that:

  • They will maintain both the Sainsbury's and Asda brands enabling them to still deliver to current customers as well as cater to new ones
  • They will combine the current network (2,800 Sainsbury's, Asda and Argos stores) to create greater choice in terms of store formats and channels
  • They have no plans for any Sainsbury's or Asda store closures as a result of the merger
  • They expect to lower prices for customers by c.10 per cent on many of the products customers buy regularly
  • They plan on creating 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.