Sainsburys Local, Earlsfield, London 10/9/09

Sainsbury’s and Walmart subsidiary to merge, but they take on a  bigger threat.

 

Sainsbury’s and Asda may seem like titans, but next to Amazon they are minnows, can they win the battle with the beast from Seattle?

 

Together, the two supermarkets will have a 31.4 per cent share of the UK grocery market, according to Kantar, versus 27.6 per cent for Tesco.

 

Some question whether the competition authorities should allow the merger to go ahead. Will the UK customer’s best interests be served by such a merger?

 

Well, the regulator allowed the Tesco purchase of Booker to proceed, besides, not so long ago, Tesco’s market share was bigger than the combined share of Sainsbury’s and Asda today. The regulator didn’t break-up Tesco when it was at the height of its powers, why would it stop Sainsbury’s and Asda?

 

Of course, Asda is owned by the US retail super-giant Walmart and has been for all of this century.  If the merger goes ahead, Walmart will become a junior partner in the business.

 

It has been a funny 21st century for UK grocers so far. At one point, Tesco seemed unstoppable, Asda looked like it was emerging as the clear number two, while Sainsbury’s seemed like a former heavyweight whose time was up. Under Justin King, Sainsbury’s began a turnaround, under Phil Clark, Tesco fell on hard times.

 

Now the two retailers have different CEOs, but one can’t help draw comparisons with King Canute.

 

As for Asda, it can’t avoid the comparison either.

 

Despite the Justin King renaissance, the Sainsbury’s share price is down by around a third over the last five years. Tesco is down by a similar amount. Since Asda is part of Walmart, we can’t make a like for like comparison with the share price, but data from Kantar shows that it has struggled just as much as Sainsbury’s.

 

Truth is, Asda and Sainsbury’s have the same problem. Budget retailers such as Aldi and Lidl are eating their market share. But Amazon, with its investment into AI and drone delivery is the real threat. 

 

The product of two negatives is a positive, and maybe if an Asda and Sainsbury’s merger can multiply their strengths, they will be able to compete with Amazon as it gains momentum in the UK. But the sum of two negatives is an even bigger negative, and to compete with Amazon, they both need a lot more than that.