Walmart stirs grocery war
WALMART is in retreat from its ambition to be the world’s top grocer and general store. It has flipped China, plans to put Sainsbury’s in control of Asda in Britain and has now sold its Brazilian operation to private equity group Advent, taking a £3.4bn loss.
The current focus at Walmart HQ in Bentonville, Arkansas, is creating a global competitor to Amazon using the technology and know-how of India’s online shopping colossus Flipkart.
The exit from Britain, however, is far from a done deal.
The Competition & Markets Authority has just closed the book on the first phase of its inquiry into the proposed £14.1bn Sainsbury’s-Asda merger.
What we know so far is that the politicians are on the case. Business Secretary Greg Clark has not repeated the errors of the Melrose-GKN tussle and has been alert to dangers, demanding an assessment of the horizontal impact of the deal, competition among grocers, as well as the impact on the supply chain.
A Sainsbury’s-Asda deal, which would cede 60pc or so of the UK’s grocery market to the new combination and Tesco, would create a dominant duopoly.
The big question is whether it will be beneficial to consumers by challenging the pricing power of the big suppliers.
If we believe Sainsbury’s boss Mike Coupe, then greater negotiating power will enable a combined Sainsbury’s-Asda to lower everyday prices on a basket of goods.
But as we report today, wholesalers fear a waterbed effect with suppliers raising prices to smaller players to maintain their overall profit margins causing ‘a massive distortion’ in the market.
Sainsbury’s-Asda argue the old tests of monopoly power don’t apply because of disruption of food markets by no-frills retailers and online newcomers. But there is some evidence to suggest that the UK may be close to peak Aldi and Lidl, with planning applications for stores slowing sharply and margins shrinking.
So far Amazon Fresh is no more than a blip on the horizon and Just Eat is far from consuming anyone’s dinner.
New CMA chairman Andrew Tyrie will need both his forensic and political skills if Sainsbury’s-Asda is not to become a huge setback to competition on the High Street.
Paper tiger
TOO often British quoted firms are begging to be acquired rather than doing the buying. It is to the credit of paper recycling pioneer DS Smith that it is willing to buck the trend with a £1.5bn deal for Spanish competitor Europac. Unusually for a bidder doing a substantial £1bn rights issue of shares to existing holders, the DS Smith stock climbed to a record high on the deal.
What Smith does better than rivals is to collect the abandoned cartons from supermarkets across Britain, the Continent and, most recently, some locations in the US and recycle it into attractive packing for online retailers. It does almost all the cartons for Amazon in the UK. Chief executive Miles Roberts in the past expressed worries about the impact of Brexit on its Continental operations. Clearly he is not concerned enough to let an opportunity for expansion into Iberia go by the board.
Too many acquisitions too quickly can make for indigestion, but so far DS Smith has managed expansion and integration well, building itself into an enterprise with a market value of £6.1bn and a place in the FTSE 100. It would be a pity if having made good use of its stock market paper, as that which it recycles, Smith were to become collateral damage in the takeover battle by American giant International Paper for Smurfit Kappa. DS Smith (less plastics) is the kind of ecologically sound firm that should not end up in an American landfill.
Royal welcome
FULL marks to Chancellor Philip Hammond for daring to dispose of a chunk of Royal Bank of Scotland shares for an expected £2.6bn.
RBS may have been brought back to health far more quickly had the Government started selling its stake much earlier rather than looking over its shoulder fearing a political blowback if shares were sold at a loss. The current plan is to sell £15bn of shares by 2023. That could be too late.
Sooner it clears the decks, the less chance there will be of socialists Jeremy Corbyn and John McDonnell getting their hands on the means of finance.