ALEX BRUMMER: Investors, suppliers, customers and communities will have little reason to celebrate from tie-up between Sainsbury’s and Asda
The first big test for former MP Andrew Tyrie as chairman of the Competition & Markets Authority (CMA) is expected next week when the merger enforcer issues preliminary findings on the proposed £12 billion tie-up between Sainsbury’s and Asda.
It is a deal which would touch every household in Britain and the behemoth created would leap above Tesco to become the biggest grocer in Britain. The creation of the super-sized chain will also have a big impact on suppliers.
Sainsbury’s-Asda have made a compelling case for the deal based around the radical changes taken place in food retailing.
Challenge: The first big test for Andrew Tyrie as chairman of the CMA is expected next week
They argue it is necessary to deliver the best prices to consumers in the face of the challenge of the German no-frills retailers Aldi and Lidl, web-based entrants to the market, notably Ocado and Amazon, as well as the rise of online food delivery services such as Just Eat and Deliveroo, which are reshaping the ready-made meals market.
Sainsbury’s won a court victory over the CMA late last year when the regulator demanded a huge data drop in double quick time. But the risk is that the grocer’s combativeness could have alienated the panel looking at the deal.
The changing shape of the High Street is demonstrated by data which shows 49.7 per cent of Aldi customers do their main shop there against just 23.6 per cent in 2010.
The widespread assumption is the CMA may well give the deal a tentative green light. The final outcome won’t be known until April when everyone has had a chance to have their say again.
What will determine whether or not the merger advances will be the remedies proposed.
The CMA is almost certain to demand Sainsbury’s-Asda dispose of perhaps hundreds of branches (some analysis has put the figure as high as 400) a requirement which would almost certainly kill the deal stone dead.
The CMA also has concerns about the impact on producers. Sainsbury’s-Asda claims the deal would be ‘an opportunity for suppliers’.
Judging from the past behaviour of the supermarkets when it comes to bullying smaller firms and changing credit terms, it is hard to see how that will stand up to scrutiny.
Unilever may be capable of giving some margin back to the merged group on Dove products, but small scale cheddar producers will have no such luxury.
Sainsbury’s-Asda has done well in shifting informed opinion on the good sense of the deal. But arguments against the deal, irrespective of remedies, remain as robust as ever. Reducing the number of home-grown supermarket chains from three to four can only, over time, increase the pricing power of remaining players.
The pledge of everyday lower prices on a basket of goods will eventually be dismantled. The online threat to fresh food sales almost certainly has been overdone as the US experience of Asda-owner Walmart shows.
Here in Britain it requires a food basket of at least £100 before online delivery becomes mildly profitable.
Big mergers use buckets of management time, create huge cultural and systems dissonance and cast a shadow over the workforce. It took years for the last big supermarket merger of Morrisons-Safeway in 2003 to pay its way. The Co-op purchase of Somerfield was among the factors which almost destroyed the historic Co-operative movement in Britain. One doesn’t blame Mike Coupe at Sainsbury’s and his old mucker Roger Burnley at Asda for giving it a whirl.
They may end up ‘in the money’, as Coupe unwisely was heard to sing. But investors, suppliers, customers and communities will have little reason to celebrate.
Ross McEwan has doggedly stuck to the task of nursing Royal Bank of Scotland back to health through more crises than you could throw a stick at.
These range from rotten US mortgage securities, to the ghastly squeeze put on businesses by the bank’s GRG recovery unit to broken computer systems.
Finally, Brexit notwithstanding, the sunny uplands are in sight with the bank expecting to be an earnings gusher by 2020.
The biggest task now is getting the Government to sell down its 62.5 per cent stake so as to ensure that Churchill-hater John McDonnell never gets his hands on the tiller.
Tories are terrified at the political fallout from selling the Government stake at a loss to the taxpayer. But that would be as nothing if an anti-capitalist Labour government took control.