A brave gamble that’s become a costly failure
SAINSBURY’S £14billion mega-merger was a bold idea and launched with such optimism that chief executive Mike Coupe was unwittingly overheard singing ‘We’re in the Money’ from the musical 42nd Street. Well, not any more, he isn’t. In theory, the Competition and Markets Authority ruling is only provisional but its findings are so draconian that, barring a miracle, the bold dream has turned to dust and the supermarket giant’s board will not be ‘in the money.’
Indeed, Sainsbury’s shares crashed 18.6 per cent yesterday, wiping £1.2billion off the company’s value. It is a very expensive failure.
With Asda, which is owned by US giant Walmart, the firm will have spent millions on lawyers and financial advisers, all now for nought.
There’s likely, too, to be a big personal cost for Coupe. Few chief executives survive a collapsed deal of this size. Calls are already being heard in the City for his head.
All of this is a shame because he is a very able executive whose plan had plenty of logic.
Until a few years ago, only a few people even contemplated a Sainsbury’s-Asda merger because it would have meant just three supermarket giants – alongside Tesco and Wm Morrison – and be bad news for shoppers and suppliers.
But the retail landscape has changed dramatically. Ruthless competitors such as German discounters, Aldi and Lidl, have grabbed an increasingly big share of the nation’s shopping trolleys.
Also, the online market is mushrooming. Amazon, the US giant, owns Whole Foods and has been scouting for sites for grocery stores. Its looming presence is scaring our home-grown supermarkets.
People are shopping differently, too. They are no longer loyal to the same store but purchase in an ad hoc way at small stores as well as with a big weekly shop.
All of this is happening with the High Street in the agonised throes of the worst downturn for decades.
Mike Coupe hoped the merger would have created hundreds of millions of pounds of extra value for shareholders and shoppers. He pledged to slash 10 per cent at the tills off everyday items such as bread, eggs and milk along with branded foods and household goods by wresting better value from suppliers such as Unilever and Procter & Gamble. That would have forced rival supermarkets to follow suit.
However, the watchdog rejected his argument and based its conclusion on a calculation that suggested prices would be higher and quality worse after a merger.
It’s true a deal would have involved risks for consumers and small suppliers. A combined Sainsbury’s/ Asda could have used its muscle to raise prices for shoppers and reduce them for suppliers – though there would have still been plenty of competition as a deterrent to that.
But a merger would have created a new British national champion at a time when retailers are weak.
Now, an enfeebled Sainsbury’s may become a takeover target – Amazon, perhaps, or maybe the Qatari investors who own a fifth of the business already.
Now Mike Coupe will never fulfil his dream of being King of the Grocers. But he made a brave move instead of meekly surrendering.
It was always a big gamble, and it is sad for him that he lost.