Competition concerns over Asda and Sainsbury’s merger
SAINSBURY’S and Asda have agreed terms for a £12bn merger. The union between UK’s number two and three supermarkets sets the stage for one of the most audacious deals in British retail history.
The duo said today the unified group would have combined revenues of £51bn and boast a network of 2,800 Sainsbury’s, Asda and Argos stores.
It will aim to generate £500m in cost savings but Sainsbury’s insisted there are no planned store closures as part of the merger, with both brands to operate side by side.
The combined supermarket expects to lower prices by around 10% on products customers buy regularly.
It will see Asda owner Walmart hold 42% of the new business and receive £2.97bn in cash, valuing Asda at £7.3bn. Sainsbury’s is valued at around £5.9bn.
If it goes ahead, the combination will create a high street titan with a bigger share of the market than Tesco.
Latest figures show that Tesco has a 27.6% market share, while Sainsbury’s has 15.8% and Asda has 15.6%. Together, they would move ahead of Tesco, with 31.4% of the market.
However, the merger would have to be approved by the Competition and Markets Authority (CMA).
It has raised concerns for suppliers and small businesses.
Federation of Small Businesses (FSB) national chairman Mike Cherry, said: “A merger of this size will concentrate a lot of power in the hands of one giant company, and it’s important that power isn’t misused to coerce small suppliers into accepting unfair contracts and poor payment terms.
“Those at the top of Sainsbury’s and Asda should explain how they plan to merge these two supply chains fairly, and give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth.
“When investigating this proposed merger, the Competition and Markets Authority should be looking for castiron commitments that a positive standard will be set for working with smaller suppliers.”
These view were echoed by the NFU Cymru president John Davies.
“NFU Cymru and the NFU will be examining the details of this proposed merger between Sainsbury’s and Asda carefully and the further concentration of retail power it creates within the food supply chain. We will also seek clarity on what the structure of any merger will be,” he said.
“With just over 31% of the market potentially being held by one company the Competition and Markets Authority (CMA) is likely to consider the impact on shoppers – but that must also take account of changes to supply arrangements that could give rise to a reduction in choice and availability over the long term.
“The impact of the whole supply chain, all the way down to farm level, needs to be carefully assessed.”
Following the tie-up, the two grocers will continue to have their own chief executives, Sainsbury’s under Mike Coupe and Asda under Roger Burnley.
Mr Coupe said: “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.”
Unions have raised fears over the prospects for jobs, although Sainsbury’s said that the deal will “offer more opportunities” for over 330,000 colleagues at all levels.
Unite has called for “guarantees on jobs” and demanded sit down meetings with senior bosses at both Sainsbury’s and Asda.