Sainsbury's and Walmart have agreed terms in relation to a proposed combination of Sainsbury's and Asda Group.
The combined business will create a dynamic new player in UK retail with significant breadth of products, delivered through multiple channels. According to the owners, bringing Sainsbury's and Asda together will result in a more competitive and resilient business that will be better able to invest in price, quality, range and the technology to create more flexible ways for customers to shop.
Mike Coupe, CEO of Sainsbury's, says: “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.”
The combination would create a network of more than 2800 Sainsbury's, Asda and Argos stores, plus several of the UK’s most popular retail websites. There are no planned Sainsbury's or Asda store closures.
John Colley, of Warwick Business School, comments: "The merger represents Walmart’s continuing reduction in activities outside the US where their main business is under severe pressure from the internet. In the UK Asda has been in difficulties for several years under pressure from Aldi and Lidl, who both offer lower prices which have continued to take share from the big four players - Asda in particular.
"The merger with Sainsbury’s is an opportunity to take cost out of the supply chain which they hope the suppliers will fund. However, distribution, regional management and head offices will all be rationalised to reduce costs.
"The Competition and Markets Authority will ensure that there are sales of stores where there is overlap which should help Morrison’s and also Aldi and Lidl. However, the large stores may well be viewed as surplus capacity in the industry which no one wants and will subsequently close.
"Ultimately there has to be job losses and the suppliers will have to pay through lower prices for the larger volumes they may see. Customers will see reduced choice and the current price war is likely to persist.
"The CMA waved through the Tesco-Booker deal and for this deal there is confidence that the price in terms of divestments may well be relatively low. However, the enormous job of integrating the two organisations will take several years. During that period it is likely that significant distraction will cause the loss of further market share. This will not entirely be bad news for the competitors who should make share gains as a consequence."