Recently the news broke that the British supermarket chain Sainsbury’s is taking over its UK competitor Asda. The US company Walmart acquired Asda in 1999. With a £7.3 billion value, Walmart will receive £3 billion for selling Asda to Sainsbury’s. Walmart will retain a 42% share in the joint business, with Sainsbury’s holding most of the decision-making power. This is massive news for British shoppers. Previously, Sainsbury’s was the second-largest UK retailer behind Tesco. The merger with Asda will create the largest supermarket group, controlling almost a third of the grocery market in the UK. What will this mean going forward?
Will Asda Be Rebranding?
The UK hasn’t seen a major acquisition like this since Morrisons acquired Safeway in 2003. Most of the Safeway stores became Morrisons. As part of their deal, Asda will not be rebranding as Sainsbury’s. Both will be maintaining their own brand separately. Sainsbury’s will manage the combined business, but Asda’s own chief executive will run their operations from Leeds. The total number of stores for both brands comes to 2,800, and their combined workforce includes around 330,000 people. Many people are likely to be wondering about store closures and job losses. Both companies say they don’t have any plans in this direction.
However, analysts believe that up to 15% of the combined stores will have to close to meet regulatory approval. In areas where there is a Sainsbury’s store with an Asda store nearby, they may decide to close one of them. Some employees could move to the other store, but most of them might simply lose their jobs. Since Sainsbury’s acquired Argos in 2016, they have integrated Argos into many of their stores. It is likely that we will begin to see Argos concessions opening in Asda stores soon as well. Their home delivery network will allow the supermarket supergroup to compete with heavy-hitters like Amazon in this area of retail.
Will Sainsbury’s Slash Prices?
Besides competition from delivery giants like Amazon, the major UK retailers have been feeling the impact of discount stores. As rising living costs leave wages behind, many customers are turning to the German discount chains Aldi or Lidl to save money on groceries. In the first three months of this year, over 60% of UK households visited at least one of these stores. Mike Coupe, the CEO of Sainsbury’s, said that the Asda merger will lead to price cuts of around 10%. They will put pressure on suppliers so they can implement these price drops. This will be a direct challenge to Lidl and Aldi, who must continue to keep their prices lower.
The German chains also have ambitious plans, with each aiming to have over 1,000 stores in the UK in the next five years. They are not afraid to undercut Sainsbury’s, as they have already been rapidly taking hold of a growing market share. Even with their new combined buying power, Sainsbury’s and Asda won’t be able to beat Lidl and Aldi for low prices. The edge that they do have, which they will probably continue to build on, is their e-commerce platforms and own-brand ranges of clothing and homeware. Lidl and Aldi don’t offer home delivery or click & collect services, and they don’t have much to compete with George, Tu, or Argos.