Will Morrisons and Co-op now tie the knot?

Supermarkets face fight to survive the German discounters

tHE £12bn merger between Sainsbury’s and asda could herald a wave of mega- deals among British supermarkets, analysts have claimed.

as the pair come together to fight off the threat from German discounters aldi and lidl, it could fire the starting gun in a scramble to bulk up – with morrisons and Co-op seen as a likely pairing.

Full details of the asda tie-up will be revealed to the markets this morning in the biggest groceries shake-up since morrisons’ £3bn acquisition of Safeway in 2004. the deal will knock tesco off its perch as market leader, and cut the so-called big four UK supermarket chains to just three.

Researchers at investment giant aJ Bell said the asda-Sainsbury’s merger shows that even the biggest players in the industry are no longer immune to the changes sweeping retail, with discounters aldi and lidl grabbing evergreater market share while online titan amazon circles for an opening.

Russ mould of aJ Bell said: ‘the next decision that will follow the proposed merger is morrisons’ competitive response.

‘the defensive merger between two rivals may well force the Bradford firm to seek out a merger or a deal of some kind with Co-op.

‘although this will not make a huge dent in the market share gap between morrisons and tesco and the proposed Sainsbury-asda entity, such a move would at least take morrisons’ market share back above the combined reach of the discounters aldi and lidl, who continue to act as a disruptive force in the UK grocery market.’

the deal comes as aldi and lidl eat up more and more of the market. In the past two years, their combined share of British groceries has climbed from 9.5pc to 12.6pc, while last year US online giant amazon, bought retailer Whole Foods in a bid to break into the industry.

mould also warned that the asda-Sainsbury’s tie-up is not guaranteed to go smoothly. He pointed to morrisons’ swoop for Safeway 14 years ago, the last major takeover in retail. It led to a string of profit warnings as bosses realised combining the two firms was far more complicated than initially hoped.

‘Getting the most out of a combination of Sainsbury and asda will not be straightforward, even if there is relatively limited overlap in terms of the store estate, either major sites or local, convenience ones,’ aJ Bell added.