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The UK Competition and Markets Authority has revealed the issues it will scrutinise for its in depth investigation into the proposed Sainsbury's - Asda merger. The investigation will consider how the merger may affect competition in each of the product markets in which it operates, at both a national level and in each local area.

Focus on outcomes for shoppers

Central to the inquiry will be an assessment of whether the removal of one of the competitors could lead to a worse outcome for shoppers. The CMA identifies three types of possible adverse effect from the removal of a competitor, namely:

  • the impetus it would give the merged entity to act against shoppers' interests (e.g. through higher prices, a reduction in a store's range and reduced incentive to innovate);
  • coordinated effects (i.e. make it more likely for grocers to co-ordinate / align their behaviour) and
  • the potential for a negative impact on suppliers from the concentration of buying power and the knock on impact this could have on shoppers, for instance from suppliers being less able to innovate of having to charge higher prices at retailers that compete with the combined Sainsbury's - Asda.

The inquiry will assess the impact on competition separately for in-store groceries, online grocery, general merchandise and fuel.

Aldi and Lidl included in market definition

The CMA has decided that Aldi and Lidl should be considered as competitors in its assessment of local and national competitors and the extent to which customers treat them as close alternatives to different types of shopping missions.

The CMA expects to publish its provisional findings early next year, ahead of the statutory deadline for its final decision on 5 March 2019. Any responses to the Issues Statement must be made by October 30th.

Sainsbury's - Asda to set out 'pro-competitive case'

Reacting to the release of the Issues Statement, Sainsbury's Asda said “We recognise that this is an important merger and welcome the detailed and thorough review by the CMA. We look forward to working constructively with the CMA and inquiry panel during this second phase of the process and to making our case that the proposed merger is pro-competitive. Customers will be the big winners from the combination. By bringing our two businesses together, we will be able to invest further in more convenient ways of shopping while lowering prices and reducing the cost of living for millions of UK households.” 

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We explore how the UK's second and third largest retailers intend to combine their businesses.

Following Saturday's announcement that the UK's second and third largest grocers were in advanced negotiations to merge, the two retailers have now outlined how they expect to execute combining the Sainsbury's and Asda businesses.

Key features of the merger

  • The combined group would create one of the UK's leading grocery, general merchandise and clothing groups, with combined revenues of £51bn for 2017.
  • The Sainsbury's and Asda brands would be maintained
  • Asda to continue to be run from Leeds and retain its own CEO
  • Sainsbury's, Asda and Argos store networks to be combined to create a complementary network of 2,800 stores and several of the UK's most visited websites
  • Walmart to own 42% of the share capital of combined business. It would keep two seats on the board of the new business, and receive £2.975bn of cash (subject to customary completion adjustments), valuing Asda at £7.3bn on a debt free, cash free and pension free basis

A full investigation by the Competition and Markets Authority (CMA) is now expected, with Sainsbury's and Asda aiming to complete the merger in H2 2019.

Rationale for the deal

In the merger document, Sainsbury's highlights how the retail sector is undergoing rapid change as customers' shopping habits continue to evolve, as evidenced through the shift to smaller baskets and more frequent shopping trips, the greatly increased popularity of the discount channel, the expansion of online and the blending of grocery and general merchandise businesses.

Customers' desire for greater value, choice and convenience has led to intense competition across grocery, general merchandise and clothing. By bringing together Sainsbury's and Asda, the two retailers expect to create a stronger and more resilient business.

Sainsbury's and Asda shared the following rationale:

  • The merger would enable investments in price, quality, and range while also creating more flexibility to shop in stores and across digital channels. Sainsbury's expects to lower prices by up to 10% on many products that customers buy regularly, while pooling the businesses’ channel expertise will create more options for shoppers
  • Their 330,000 employees should gain from new career opportunities, and no store closures are planned
  • The deal promises to deliver at least £500m of net synergies after investments in price.  £350m are expected from harmonising buying terms, £75m from opening Argos in Asda stores and £75m from operational efficiencies

 

Comments on the deal

Mike Coupe, CEO of Sainsbury's: "This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future. It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy. Having worked at Asda before Sainsbury's, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together."

Judith McKenna, Walmart International, President and CEO:"This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth. Asda became part of Walmart nearly 20 years ago, and it is a great business and an important part of our portfolio, acting as a source of best practices, new ideas and talent for Walmart businesses around the world. We believe this combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive UK market. It will unlock value for both customers and shareholders, but, at the same time, it's the colleagues at Asda who make the difference, and this merger will provide them with broader opportunities within the retail group. We are very much looking forward to working closely with Sainsbury's to deliver the benefits of the combined
business."

Roger Burnley, Chief Executive Officer of Asda:"The combination of Asda and Sainsbury's into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice. Asda will continue to be Asda, but by coming together with Sainsbury's, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive. From my six years with Asda and ten years with Sainsbury's, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together."

Sainsbury's has become the UK's first grocer to trial electric cargo bicycles for its grocery home delivery service.

Speed and environmental advantages

The trial will test the potential for electric bikes as a more efficient way to deliver groceries to customers in congested cities and offers distinct advantages. Bikes can make use of cycle and bus lanes and can achieve point to point delivery times up to three times faster than vans, according the bike service provider e-cargobikes.com. They are also easier to park and by emitting no pollution offer obvious environmental benefits. Set against this is the limited capacity of the cargo bike - 125kg of groceries in front and rear lockable boxes. While much greater than the capacity of Sainsbury's existing Chop Chop delivery cycle courier service launched in 2016, this is clearly much less than conventional vans.

A group of people riding on the back of a car

Description generated with high confidence

South London trial

Based at Sainsbury's Streatham Common store in South London, a fleet of five zero emission bikes will deliver up to 100 orders per day to local online customers. Once customers have placed their online orders, Sainsbury’s will use routing technology to determine which orders are delivered by a traditional van or by electric cargo bike. The order will then be delivered during the customer’s chosen time slot by Sainsbury’s branded bikes and riders. 

Potential for wider rollout

If successful, the trial could be rolled out to further areas across the UK. Commenting on the launch, Clodagh Moriarty, Director of Online at Sainsbury’s, said: “We’re delighted to be the first supermarket to trial grocery deliveries by electric cargo bikes. We’re always looking for new ways to make sure we can best serve our customers and this trial will help us explore whether there might be a more flexible way to deliver Sainsbury’s groceries to those who live in busy cities.”  

Presentations

13/12/2018
Food and grocery businesses are undergoing significant change and there’s no doubt that our food and grocery supply chains will have to adapt to mitigate risk and grow. In this report, we look at 5 ways that businesses can strengthen their convenience supply chains.
28/11/2018
At this year’s IGD Supply Chain Summit, we heard from business leaders, academics, supply chain directors and more, on a wide range of topics. Here is our summary of the main stage presentations.
02/05/2018
We explore how the UK's second and third largest retailers intend to combine their businesses.

The supply chain industry is evolving rapidly. Driving an incremental skills and talent shortage in its wake. Uncover the five routes to success to allow you to equip your supply chain for the challenge ahead.

Discover how segmenting your customers can help drive profitable growth within your business. This presentation and accompanying practical tool will help you manage your resources more effectively.

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Early bird offer!
27 June, London
Hear from Group CEO, Mike Coupe and the Sainsbury's and Sainsbury's Argos leadership teams, who will provide a business and commercial update on ‘Destination Sainsbury’s’.

A practical one day workshop for all roles in suppliers, to help develop your understanding of the vital part that supply chains play in underpinning FMCG businesses.