This morning Asda and Sainsbury’s confirmed the weekend rumours of a merger with Sainsbury’s capturing 58% of the combined entity subject no doubt to regulator and shareholder approval. Here are our initial thoughts on the deal:
1. This merger can only happen because Aldi and Lidl have performed so strongly that it can now clear a CMA investigation. In 2012, the combined share of Asda and Sainsbury’s according to Kantar was almost 35% – in March 2018 it was barely 31%. In that time Aldi and Lidl combined shares have increase from 5.7% to 12.6%. The CMA will force a few store sales but in our view this deal will clear. The question is, “will the merger do anything to slow the growth of German hard-discounters?”
2. Food manufacturers, both branded and own label will be frantically comparing their trade terms between the two parties and wondering how much they will be asked to contribute, when the buying teams combine. A few will be praying that keeping the fascias distinct will mean that buying teams will also stay separate. Prayer will not be enough to deliver that.
3. Walmart will become a minority shareholder – hmmm. I am not sure how that will work in practice.
4. Consumers are the clear winners. There will be price reductions as some cost savings from the merger will be traded away to make the new business more competitive with Tesco and the German hard discounters.
5. There will be job losses. Lots of them. In head office locations at both Sainsbury’s and Asda. In distribution centres. In buying teams. At suppliers who are forced to find cost reductions.
6. The Argos acquisition makes a lot more sense if you can roll it out into Asda stores as well as Sainsbury’s stores.
7. Competitors will be reacting differently
a. Tesco will now have a clearer target and in any case are busy integrating Booker
b. Morrisons is looking more lost than ever. Who can buy them now?
c. Aldi and Lidl will think – “So what?”