“We’re in the Money”

A couple of weeks have gone by since the notion of a merger of Asda and Sainsbury began to be debated in the media.  During that time I wondered whether to add to the coverage via this blog or to let it lie, and let my comments on radio and TV in Scotland speak for themselves.  But in the end the Mike Coupe audition for ‘best tactless singing’ in the run up to Eurovision won the day.  What was he thinking?  And even more so, what are his customers and his suppliers now thinking?  Crass doesn’t begin to cover it.

So what can we say about the proposal?  It seems to be Wal-Mart throwing in the towel in the UK, so if it does not go ahead it is hard to see where this will leave them.  This is not, in my view, likely to be concluded soon, and with Asda head office likely to be more affected, there may be some strategic personnel jumping ship/cherry picking in the meantime.  For Wal-Mart this is a rather risky throw of the dice, but as I argued in 2011 they had been rather forced into Settling for Second Best (download my paper Settling for Second Best).

Most of that risk is embodied in the experts used by the Competition and Markets Authority.  Surely they have to look at this with a rather critical eye and take their time to do a thorough job.  After all if they can look at single or small numbers of overlap stores in other takeovers, then surely this raises real competition issues.  But then I had convinced myself that Tesco and Booker would be a drawn out investigation and could ultimately lead to sell-offs or refusal.  How wrong was I?  Perhaps the rise of the discounters and the threat of new entrants and the internet, as well as the change to the two markets approach, renders the CMA mute?  (or is that moot?)

Assuming that the CMA regains its voice and orders store sell offs or closures, then this is where it gets interesting.  Are there buyers out there, and does it matter if there are not?  Some stores would be attractive to existing players in some locations, though might not help Sasda or Asbury or whatever we call it.  Some may not be attractive (or allowed).  But could a new entrant e.g. Amazon make a move and how might that be realised and responded to?  Maybe shutting down is a more attractive idea (if allowed?).  Whatever, I can’t see any circumstances where the Mike Coupe ‘no store closures’ can be true.  There will be job losses.

These losses will also be felt by the two company’s staff and by suppliers.  If the 10% reduction in prices is to be met, then there will need to be savings in overheads, buying and distribution at least.  This will mean facilities will close and staff will be lost in stores, distribution centres and head offices.  Suppliers will be expected to pony up their contributions as well, which will be easier for some (the larger) than others (smaller ones).

And finally, what of the competitive effects?  Tesco will be back as #2 in the market if this is allowed and the UK will be a duopoly.  Do we really want this to happen?  There will also be quite an effect in some non-food markets and segments and here power may also be seen and executed.  Will this be good for the consumer?  I suspect Asda and Sainsbury customers will be worried about their own brand dilution.  Price cuts always play well, but not if the costs are a limited choice and confusion.  But then, from Mike Coupe’s choice of song, does the consumer really matter and which executives will be around to see it through?

In case anyone wonders how Asda got to this point, I link below (for downloading) a range of papers from a while back that I  produced on the company since the Wal-Mart entry:

Walmart’s World– book chapter (2006) on Wal Mart and Internationalisation

Asda Walmart in the UK – book chapter (2006) on Wal-mart’s takeover of Asda and the implications

When tony met bobby – paper (2007) on the very odd meetings between the Government and Wal-Mart prior to the takeover

Settling for Second best – paper (2011) reflecting on the lack of progress of Asda ten years after thew takeover

 

 

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Internationalisation and Graduate Studies.
This entry was posted in Asda, Booker, CMA, Competition and Markets Authority, Consumers, Food Retailing, Government, Mergers, Policy, Retail Change, Retailers, Retailing, Sainsbury, Store Closures, Suppliers, Tesco, Wal-Mart and tagged , , , , , , , , , , , . Bookmark the permalink.

4 Responses to “We’re in the Money”

  1. Steve Wood says:

    I enjoyed the post, Leigh. Some thoughts… If we remember back to the sale of Safeway in 2003, the Competition Commission said Morrisons were the only viable purchaser. In contrast, Tesco, Asda and Sainsbury’s were told that they were not allowed and were effectively out of the game. The market shares of these three players has not shifted significantly in this time. Assuming the same view holds, this national scale concentration should prevent JS and Asda from merging before we even get to a catchment by catchment analysis of assessing horizontal market overlap. However, I suspect that the CMA will fold, wave it through subject to 30 or so divestments in selected catchments. Like you, I am concerned that many of the individual store divestments might be ineffective because they may be unattractive to competitors. The issue at the moment is rationalising store portfolios rather than opening them – the big 4’s race for space has been over for five years or so. I really do not think this will end up a good deal for the consumer with fewer competitors or for the ever squeezed suppliers.

  2. Thanks Leigh – as always some interesting and valuable reflections. It is indeed an interesting move by both parties and if we are to believe the fact they have been in early talks about a merger ‘for a year’, then I am assuming they must have also had some initial discussions with the CMA. Given the timing of the merger announcement came relatively quickly after the MCA green light to Tesco/Booker deal then I just wonder whether Walmart and Sainsbury’s have already had some indication that there may only need to be minimal store closures? It’ll be fascinating to follow (and to hear whether their request to have the CMA immediately move to a Stage 2 inquiry will be agreed) I can’t also help thinking the Walmart acquisition of Flipkart (and the timing of that) must be connected directly to the timing of the merger with Sainsbury’s and confidence it will be approved reasonably quickly by CMA.

    • Leigh Sparks says:

      Good points Nelson. Walmart moves need to be seen in context of other sales.

      Alan Hallsworth emailed to ask if FOI would reveal anything, as I did with Walmart and Asda merger which resulted in the Tony met Bobby paper. Might pursue this when things calm down.

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