A bold move... but will it work for shoppers?

WHILE Sainsbury’s shoppers were busy pushing their trolleys round the aisles this weekend, the man upstairs was busy plotting the biggest gamble of his life.

A £15 billion merger with Asda is undoubtedly a bold and unexpected move by Sainsbury’s chief executive Mike Coupe, whose reputation has previously been for steady hands rather than grand gestures.

It is a huge deal, with serious implications for staff, for hundreds of small suppliers and, of course for shoppers, who have, since the financial crisis, been suffering the worst crunch on living standards for generations. The last thing they want is any increase in the cost of a weekly shop.

Mike ‘Cut-price’ Coupe and his team will argue that the opposite will happen, when they unveil more details of the proposed deal tomorrow morning. Costs, he will say, are set to reduce as a combination of Sainsbury’s and Asda will leapfrog Tesco to become Britain’s biggest grocer.

Coupe’s view is that enormous savings can be achieved as a result of the formidable muscle and buying power of the gigantic new supermarket chain, and that these will be passed on to consumers.

That’s the theory. Sceptics, though, will fret that there is no guarantee this will happen in reality. The mega-merger will also prompt suppliers to fear they will be squeezed even further in the relentless battle to drive down prices.

The two chains are very different and will retain their own identities so as not to alienate their core customers. Sainsbury’s has traditionally had a genteel image and is strong in the South of England. Asda has a more cheap and cheerful approach and is a powerhouse in the North.

The real rationale for the tie-up, though, is that both are feeling the chill of competition from German discounters Aldi and Lidl, which have been seizing larger and larger shares of the nation’s shopping basket. Online operators are also a growing threat.

The pressure on wholesale prices following the Brexit referendum, with the fall in the pound ramping up the cost of imported goods, squeezed margins yet further.

Uncertainty over the future of EU workers, who the stores rely on to stock shelves and pick their fruit and vegetables – added to the worries. But is a merger the best solution for the two firms and their consumers?

Those of us with long memories will recall that this is the biggest deal in the grocery sector since Wm Morrison took over Safeway in 2004. That’s not a happy precedent.

Coupe, whose modest demeanour belies a steely streak, could point to his successful takeover of Argos in 2016 as a counter-example, though at £1.4 billion it was a much smaller deal. Argos stores, already inside branches of Sainsbury’s, are likely to sprout up in Asda shops in future.

That’s assuming the deal is waved through. City analysts

I It is uncertain h how many stores could be closed

reckon the Competition and Markets Authority will not block the tie-up, though regulators are likely to order some disposals.

One reason mergers often come adrift is executive ego, as bosses clash over precedence. Here there is cause for hope. The relationship between Coupe and his counterpart at Asda, Roger Burnley, is a close one.

The two grocers are former long-standing colleagues who get on well. They worked sideby-side at Sainsbury’s for years before Burnley moved to Asda last year, where Coupe also worked earlier in his career. After the merger, Coupe will be overall top dog while Burnley will keep his role as the supremo at Asda.

Many questions remain, including how many stores might be closed. One thing is for certain, though: knitting together two large store chains is a task that will test even the most brilliant executives.