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