Trolley tiein shelved

Iwrite here today about an ending. Sainsbury’s and Asda have agreed to cease merger talks. Billed the retail deal of the decade, it would have created the UK’S largest supermarket chain, accounting for £1 in every £3 spent on groceries.

But the tie-up was blocked by the Competition & Markets Authority, which said it would lessen competition. The UK’S competition watchdog also said the £7.3bn deal would raise prices for consumers.

Whichever way you look at it, the merger would have been a spectacular and game-changing creation of a duopoly in the notoriously cut-throat UK grocery market. It would have put almost three-fifths of Britain’s supermarket industry under the control of two companies.

Sainsbury’s and Asda (owned by Walmart) maintain that the tie-up would have cut their costs, allowing them to lower prices for consumers. But they won’t fight the decision. The consolidation was expected: German discounters Aldi and Lidl have continued to gain market share, and e-commerce giant Amazon (through Amazonfresh and Whole Foods) is gaining traction. And there was also the reinvigorated market leader Tesco in the distance.

The latest research I could find (from Kantar Worldpanel) says nearly two-thirds of households now visit an Aldi or Lidl branch at least once every 12 weeks. Aldi and Lidl, through their cut-price model, changed the buying

habits of UK consumers, renowned for their snobbery around discount stores.

When they first entered the UK market, existing supermarket players with their 7% profit margins (the world’s highest) scoffed at their barebones offering. British customers, the incumbents argued, wanted attention, array and a bit of ceremony, a grocery potpourri over spartan aluminium shelves laden with single-ply loo roll.

But in the past year, the UK’S big four grocers have all lost share to Aldi and Lidl, which now have a combined 13.65% share. The market share of both Sainsbury’s and Asda now stands at 15.3%, while Tesco’s is at 27.4%.

At best, I can liken the “German supermarket effect” to how inextricably the Woolies food business shifted the way that wealthier South Africans shop, but on the opposite end of the spectrum.

e:

Definitely not in the money

In the maddening uncertainty of

Brexit, consumers have embraced the budget offering with fervour. And they now sell more than just the mundane: not far from the 75p bathroom cleaner, you will find spatchcock duck, prosecco and chocolate truffles with caramel centres.

With their deal torpedoed, where does this leave Sainsbury’s and Asda? Worse off, actually.

Some analysts are already calling for Sainsbury’s boss Mike Coupe’s scalp. The architect of the proposed merger will report another set of tepid results for the grocer this week. Jpmorgan forecasts that Sainsbury’s will deliver £609m in annual pre-tax profit, missing a £634m consensus estimate. Coupe, you will remember, while waiting in an ITV studio for an interview on the day the merger was announced, was caught on camera quietly singing the song We’re in the Money to himself.

For Walmart, which saw the deal as a way to lessen UK exposure (it is eyeing higher-growth markets like China and India), another exit route is needed. There are two likely options: a stock market listing or a private equity buyer. In the current climate, neither will be easy.