NEWS

The Sainsbury’s / Asda merger: a handy guide

Published on: 4th May 2018

There are lots of questions about the impending merger (or more accurately, takeover). Toy World attempts to answer some of them.

How should we refer to the newly-conjoined operation?
Being a fan of the literal, we are going with ‘Sasda’. Or perhaps ‘Assburys’. No, definitely not that one.

Will there be a culture clash between the two organisations?
Probably not as much as you think. Sainsbury’s boss Mike Coupe is ex-Asda, while Asda chief executive Roger Burnley is ex-Sainsbury’s. That should help. It is interesting that, in the past, Sainsbury’s has been quoted as saying that it was a good thing that it wasn’t exposed to large format stores like Asda’s. Maybe some revaluation is needed on that score.

Does the deal offer Sainsbury’s a route to expand into the US market?
It’s possible, but unlikely. The deal is more a reflection from Walmart’s desire to withdraw directly from the European market. Asda was its last remaining European outpost. Indeed, rumours suggest that Walmart has been looking to unload Asda for the past two years. Asda seems a huge operation here in the UK, but there are more branches of Wal Mart in Texas than there are Asda branches here in the UK.

At $118bn, Walmart’s international business represents less than 25% of its overall $500bn turnover. Growth markets such as China and India remain the primary focus for Walmart’s international expansion. Walmart CCO Judith Mckenna was appointed to run the retailer’s international business unit in January. It has taken her less than five months to decide that it would be better to strike a partnership and take a (minority) shareholding, rather than go it alone in Europe.

So why does Walmart want out now?
At the time Walmart acquired Asda in 1999, it was the UK’s third largest supermarket chain, with annual sales of more than £8bn from 229 stores, employing more than 78,000 staff.
Today, Asda has annual sales of over £22bn from 584 stores and employs more than 146,000 staff.
On paper, it’s a substantially bigger business. But it’s still only the UK’s third largest supermarket chain.
And the price at which it is being valued? £7.3bn – a mere £584m more than Walmart paid for it 19 years ago.

Will there be store closures and job losses?
The initial announcement stated optimistically that there were “no plans for any store closures.” However, the Competition Market Authority may insist on individual branch closures to ratify the deal. In the past, the yardstick it has used to determine whether closures need to be made to maintain competition is a 5-15-minute driving time. Of Asda’s 630 stores, 526 are within five miles of a Sainsbury’s outlet. 76 stores are within the same postcode district.
While media reports of a North / South divide are overly simplistic (perhaps as simplistic as the notion that Sainsbury’s shoppers are all middle class and Asda shoppers come from a less affluent background…), it is likely that some judicial pruning of the store estate will be required.

Will the Competition Market Authority intervene?

The CMA is already said to be looking into the deal. But as it is broadly considered to be a ‘chocolate fire-guard body’, the likelihood is that it will wave the deal through, merely insisting on a few store closures to quell any potential dissent. Anyway, why is there only one Competition Market Authority? Isn’t that the ultimate irony?

In addition to store-based job losses, will there also be head office job losses?
Get ready for management speak such as ‘rationalisation’ and ‘efficiency savings.’ Argos and Sainsbury’s are still in the throes of merging, and now an additional head office buying and admin team has been thrown into the mix.
Assuming there are significant job losses at store and head office level, it will add to the already depressing retail employment statistics. Even if you are a heartless neo-liberal and you aren’t concerned about the impact on their families and dependents, look at it another way; many of those people will be toy consumers, and every retail job loss reduces our potential market value.

What are the main opportunities and challenges or suppliers?
Suppliers unanimously hold the opinion that Argos and Sainsbury’s toy divisions are head and shoulders above Asda’s. The deal could end up with Asda becoming more of a force in toys. It is also likely that Argos collection points will be added to many Asda stores, boosting Argos suppliers’ turnover.

As for challenges, the inevitable request for better terms and increased contributions for incremental business writes itself. Plus, if a toy company is trading with all three accounts, those terms will presumably end up being visible to all sets of remaining buyers. Will they be happy to take an average of the three sets of terms, or will they pick the most advantageous of the three choices (this is obviously a rhetorical question)?

Is everyone happy?

Well, Sainsbury’s CEO Mike Coupe certainly is. In case you missed his impromptu ‘caught off guard’ performance, here it is in all its glory. All together now, “We’re in the money”…

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