Sainsbury’s & ASDA: Gauging impact merger could have in the North West
The proposed merger between Sainsbury’s and ASDA has raised a myriad of questions – many of which have gone unanswered by the former’s chief executive. As the Competition and Markets Authority (CMA) runs the rule over the possible partnership, Move Commercial examines both retailers’ regional presence and considers what impact their high-profile union could have in the North West.
Words by Lawrence Saunders
“We’re in the money, the sky is sunny” crooned Sainsbury’s chief executive officer Mike Coupe as he waited to start an ITV interview about plans to create the UK’s biggest supermarket chain.
Whilst Coupe himself might have had plenty of reasons to be cheerful, 600,000 in fact if reports are to be believed, others were less enthralled by the news of Sainsbury’s proposed ASDA takeover.
Labour’s shadow business secretary Rebecca Long-Bailey said the deal had “significant competition risks,” and urged the CMA to secure “concrete assurances” to protect workers and suppliers.
“For many small towns including several in the North West, Sainsbury’s and ASDA represent the only supermarket options at their disposal,” says Adonis Michael, director at Liverpool-based law firm Michael Rose & Baylis.
“This is clearly worrisome due to the potential for a merger to create monopolies in these towns, with inflated prices affecting consumers as a result.
“Furthermore it raises concerns over whether a merged Sainsbury’s and ASDA would want to continue to operate two or three stores in a small town where they are now the sole player.
“Why would they when they can simply close one or two, and drive all custom to the remaining store?”
Coupe, who plans to head up the combined business, has insisted there will be no store closures or in-store job losses, claiming the deal is a “transformational opportunity to create a new force in UK retail” which will give customers “more of what they want now and in the future” – including a 10% price cut on popular items.
Despite the CEO’s reassuring rhetoric, many experts expect both ASDA and Sainsbury’s will be forced to give up a number of stores by the CMA.
Research conducted in the wake of the merger has found that at least 73 supermarkets may have to be sold in order for the deal to go through.
According to the report from Maximise UK, the South East and the North West with 17 and 13 trading overlaps respectively, are the areas of the country most at risk from Sainsbury’s and ASDA closures.
“Those at the top of Sainsbury’s and ASDA should explain how they plan to merge these two supply chains fairly.”
In spite of the report’s findings, not all observers are convinced the potential partnership will see a glut of supermarkets changing hands across the North West.
“Here in the North West, data from the Local Data Company shows that 32% of ASDA stores are within a 2km radius of an existing Sainsbury’s,” says John Pal, senior lecturer in retailing at the Alliance Manchester Business School.
“The two retailers have already stated that they would keep the existing fascias and operate separate head offices.
“So it could be difficult to see how the CMA might demand the sell-off of stores, where existing stores are located close to one another, especially as the formats tend to target different customer segments.”
In spite of this, Pal cites Morrisons’ 2004 takeover of Safeway as an example of when the CMA has demanded the sell-off of stores despite the two supermarkets in question targeting different sets of customers.
However, as Pal points out, the key difference with that deal was that all the Safeway stores were eventually converted to Morrisons.
“In Southport, for example, the Morrisons store was sold to Waitrose, as there was an existing Safeway in the town (that was subsequently rebranded as a Morrisons),” he adds.
Aside from the customer-facing operation, the fate of Sainsbury’s and ASDA distribution centres post-merger have also been a topic of debate.
Conservative MP Mark Menzies, who worked in ASDA’s head office for 11 years, called on the government to protect distribution centres to avoid them getting “absolutely hammered” if the mega-merger goes ahead.
“It raises concerns over whether a merged Sainsbury’s and ASDA would want to continue to operate two or three stores in a small town where they are the sole player.”
Here in the North West, Sainsbury’s has a 600,000+ sq ft distribution depot in Haydock whilst ASDA opened a £100 million state-of-the-art automated centre at Warrington’s Omega business park last summer.
More pressing concerns surround how small businesses in the supply chain will be affected if the two companies come together.
Industry observers have questioned the soundness of Sainsbury’s pledge to slash the price of popular items by 10% without cuts being made somewhere across the combined business.
In a recent letter to the CMA, the Business, Energy and Industrial Strategy and the Environment, Food and Rural Affairs committees outlined their fear that the deal could damage the grocery supply chain.
“Our committees have concerns over the impact that this merger would have on the grocery supply chain, particularly as the new business and its next largest competitor, Tesco Plc, would dominate the groceries retail market,” read the correspondence.
For its part, Sainsbury’s says the merger will create “significant opportunities for suppliers to develop differentiated product ranges, become more streamlined and to grow their businesses as the combined business (Sainsbury’s and ASDA) grows”.
“A merger of this size will concentrate a lot of power in the hands of one giant company, and it’s important that power isn’t misused to coerce small suppliers into accepting unfair contracts and poor payment terms,” says Phil McCabe, development manager at FSB (Federation of Small Businesses) Merseyside, West Cheshire and Wigan.
“Those at the top of Sainsbury’s and ASDA should explain how they plan to merge these two supply chains fairly, and give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth.
“When investigating this proposed merger, the CMA should be looking for cast-iron commitments that a positive standard will be set for working with smaller suppliers.”