If this was a boxing match, then the result was a clear knockout, perhaps to the surprise of some onlookers. As one of my followers on Twitter noted, it is nice to see a regulator regulating. In this case, it was a straight NO – there is no case for the merger and it would cause multiple substantial lessenings of competition – in supermarkets, convenience stores, petrol and on-line.
To quote the regualtor the merger was blocked as it would lead to “expected price rises, reductions in the quality and range of products available, or a poorer overall shopping experience”. The customer would be worse off. This is a devastating multi-punch combination snatching (nay, bludgeoning) the prize money from Mike Coupe’s grasp. The full report is available from the CMA here.
I was not sure what I expected really, but it was nothing as brutal as this. I thought the CMA, especially after the knock-down of the provisional findings earlier in the year, would probably ask for a very high number of store sell-offs; so high as to be impossible for Asda and Sainsbury to contemplate complying with. That way the ‘failure’ would be on the companies. But no, they went all-in; we just say no.
Asda and Sainsbury must have thought at the outset that they had a chance. A year ago I wrote on this (“we’re in the money”) and was far from sure the merger would be allowed; but as I noted then, I could not believe Tesco/Booker was allowed. Given the market changes at the convenience store level, the c12% share of Aldi and Lidl and the shift to online sales (say 6% of groceries), then I suspect Asda and Sainsbury felt they had some hope. But they did not, and the CMA have really shied away from an effective duopoly, despite these wider market developments. The surprise for me in this is the strength of the CMA arguments on online retailing – they saw the state of the market as a negative for the merger, and not as a market undergoing change (at some pace) and thus likely to develop in interesting ways.
The Asda/Sainsbury merger was born out of problems for both retailers and none of those have gone away. The market continues to alter. Tesco has rebounded more quickly than expected and remains secure defending a 27% market share. Morrisons and the Coops are having fun whilst Waitrose and M&S try to figure their problems out. The discounters march on.
In April 2017 the columnist John Richards mused about the cost of all the adventures Sainsbury have had over the years (see my post and links) and whether the cost outweighed the benefits and whether the management time and effort could have been more profitability spent focusing on the core of the company. He described their approach as Sainsbury’s “death wish” and cited SavaCentre, Homebase, Shaw’s, Netto and now Argos as illustrations. That may be a tad strong, but you perhaps get where he is coming from. He also missed out Egypt and some other lesser roads entered. And then they went and added Asda to the list of “distractions”.
But back in the Uk, what are Sainsbury stores like and how are consumers reacting? Sainsbury has trod water for far too long and is likely to need fresh blood at the top and a real and sustained focus on operations. This has been missing for quite some time. Asda are stuck where they were with an unclear growth strategy. The parent Walmart has failed to change the UK market as it hoped when it lobbied the Labour Government ahead of its takeover almost 20 years ago (see the linked papers here). If they want out, then who is the buyer? Reading the CMA report, It would have to be a new player, but to what end and what could they do with the business? An interesting conundrum but how desperate to sell at any price are they?
Basically, a year wasted for both Asda and Sainsbury and at some cost. The problems for both remain the same. Not so much “we’re in the money” as “we’re in the s**t”.
Notwithstanding that the CMA have used ‘Analogue Metrics’ in a global digital world to come to their conclusion (their entire methodology requires an overhaul for the retail sector), they also raised the bar when looking at ASDA Sainsbury compared to Tesco Booker. In the CMA’s preliminary findings they did wave strongly the red flags as they saw them. I do concur that Sainsbury has been distracted and lost its way in recent years. Although I had Mike Coupe as one of the smartest brains in retail for sometime there has been a nagging doubt since he has been ‘muddying the water’ (acquisition accounting) with diversification. Not too dissimilar to the Tesco write-offs now coming back through the numbers! Both ASDA and Sainsbury, as you point out, need to address the fundamental changes in UK retail today. Dr T.
I suspect that the bar raising is due to the new broom at the top? Think Tesco/Booker and Asda/Sainsbury done under two different regimes? Like the signature – congrats.
Another informative post Leigh. Andrew Busby wrote an interesting piece in Forbes.com last week on this topic with which I totally agree. The CMA decision is absurd given how competitive the UK Grocery market is.
Yes, I saw that one. I suspect though that the thought of two firms with c60% of the market was never going to be palatable.
Kind of an anti-climax for me TBH. I just could not get my head around why-ever the two contenders embarked on this route. My reasons being: two different types of ‘offer’ to their respective customer segments; two significantly different corporate cultures; strategic complexities around the respective estates/facilities portfolios (and maybe a lack of a rationale to justify the combination of the estates/facilities); and of course the high likelihood of severe conditions placed by the regulator on any proposal. My assumption was that there must be something, or some things, blindingly obvious that I was not picking up on. I was, therefore, looking forward to being better able to comprehend what it was all about once the regulator’s response, and the response of the two contenders became clear. Instead, it just seems a total ‘all bets off’. Ah well, there’s the rumours and noise around a possible Amazon takeover of Morrisons to move onto.
The whole thing seemed to smack a little of desperation from the outset, by two businesses struggling to compete with the discounters and the market leader – caught in between. But as you say a merger with little strategic logic beyond scale – that is not to say they might not have found one eventually. But the focus was on scale (the cost savings – not believed by the regulator) and rather bizarrely at the outset on no store closures (really?).
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