One has a Victorian legacy, the other was founded in the 1960s, but both chains at the centre of this supermarket mega-merger had humble beginnings.
It was in 1869 that John James Sainsbury and his wife Mary Ann opened a dairy shop on Drury Lane in London.
Legend has it that the couple first opened its doors on April 20, the day they got married.
It was in 1869 that John James Sainsbury and his wife Mary Ann opened a dairy shop on Drury Lane in London (pictured here in 1920)
The man who gave the company its official name, J Sainsbury, died in 1928, when there were 128 shops. ‘Keep the shops well lit,’ were said to be his last words.
The company pioneered self-service in the 1950s and 1960s.
This may even have been an inspiration to two Yorkshire butcher’s sons who created Asda in 1965 when they merged their Queen’s supermarket chain with a local dairy farming enterprise called Associated Dairies.
The name Asda is a combination of the first two letters of the brothers’ surname, Asquith, and the first two letters of Dairies.
Asda grew rapidly across the North in the 1970s, with the slogan ‘That’s Asda Price’. Times got harder in the 1980s, as the Leeds-based group had spread itself too thinly after buying Allied Carpets and furniture business MFI, both of which were subsequently sold.
Archie Norman, who is now chairman of Marks & Spencer, took over as chief executive of Asda in the early 1990s and restored it as a major force in retailing, boosted by the popularity of the best-selling George clothing brand.
Asda was also a management training ground for Justin King and Mike Coupe, who both went on to run Sainsbury’s.
Q&A on Sainsbury’s and Asda
Q How big would the combined Sainsbury’s and Asda be?
AThe two put together would have sales of around £50 billion a year and almost 2,000 stores. If you include Argos, which Sainsbury’s bought two years ago, the total is nearer 3,000 shops.
Q Why do the two giant chains need to merge at all?
A Two simple answers: Aldi and Lidl. From virtually nowhere, the German usurpers have taken a 12.6 per cent share of the grocery market in the past decade with their discount prices – and that hurts. The cut-price challengers continue to grow at a rapid rate. Despite a fightback by traditional grocers, estimates suggest the Germans are still 10 per cent cheaper on average.
Q Are they any other factors at play behind the scenes?
A Quite a few factors, actually. Supermarkets have been hit by what Tesco boss Dave Lewis describes as a ‘lethal cocktail’ of costs and taxes, from the minimum wage to business rates. But they have been the architects of their own problems too, by opening too many stores in a race for space. They are now paying the price.
Q Will the price of my shopping basket go up?
A In theory, no. Sainsbury’s and Asda will argue that they will have more buying power together and therefore will be able to pass on price cuts to consumers. But this may not lay to rest concerns that fewer retailers equals less competition, which can lead to higher prices.
Q Will either Asda or Sainsbury’s disappear?
A No. The plan is for each chain to keep its own name and brand, at least at first.
Q Will my local store close? And will there be job losses?
A Not in the short term, but job losses are probable in the longer run. And it is unlikely that every store will survive, particularly in towns where Sainsbury’s and Asda have outlets close to one another.
Q Who will run the new business if the merger goes ahead?
A Sainsbury’s chief executive Mike Coupe is tipped for the top job. Current Asda boss Roger Burnley will continue to run the Asda stores, sources suggest.
Q What is Walmart and what part will it play?
A Walmart is the biggest retailer in the world. With $500 billion (£362 billion) of revenue, it dwarfs Britain’s store chains many times over. It is expected to keep a substantial stake in Asda, meaning that the new British firm would have the backing of a powerful American ally.
Q Could the Competition and Markets Authority block it?
A The CMA’s job is to prevent companies becoming too dominant and harming consumers, rivals, suppliers and the economy as a whole. It could block the deal totally, but City observers believe it is more likely to order the two grocers to dispose of stores in certain local areas where there are a cluster of them close together, crowding out competitors.
Q How much is the proposed megadeal actually worth?
A Some analysts put it at more than £10bn. But the ‘enterprise value’, which the City often uses when assessing deals, is closer to £15bn including the pair’s debts, bank loans and pension liabilities. Imagine the Nectar points you’d get for that!
Asda was bought by US giant Walmart in 1999 for £6.7 billion.
Sainsbury’s had floated on the stock market in 1973. But it struggled in the 1990s, under the leadership of David Sainsbury.
Its turnaround was led by Justin King, who was in charge for ten years until 2014.
The family has retained a stake but is not involved in management. Qatari investors are now the biggest shareholders, owning just under a quarter of the business.
RUTH SUTHERLAND: Could Mike ‘Cut-price’ Coupe and his merger of Sainsbury’s and Asda leave shoppers facing a rise in their weekly shop cost?
While Sainsbury’s shoppers were busy pushing their trolleys round the aisles this weekend, the man upstairs was busy plotting the biggest gamble of his life.
A £15 billion merger with Asda is undoubtedly a bold and unexpected move by Sainsbury’s chief executive Mike Coupe, whose reputation has previously been for steady hands rather than grand gestures.
It is a huge deal, with serious implications for staff, for hundreds of small suppliers and, of course for shoppers, who have, since the financial crisis, been suffering the worst crunch on living standards for generations. The last thing they want is any increase in the cost of a weekly shop.
Mike ‘Cut-price’ Coupe and his team will argue that the opposite will happen, when they unveil more details of the proposed deal tomorrow morning. Costs, he will say, are set to reduce as a combination of Sainsbury’s and Asda will leapfrog Tesco to become Britain’s biggest grocer.
Coupe’s view is that enormous savings can be achieved as a result of the formidable muscle and buying power of the gigantic new supermarket chain, and that these will be passed on to consumers.
That’s the theory. Sceptics, though, will fret that there is no guarantee this will happen in reality. The mega-merger will also prompt suppliers to fear they will be squeezed even further in the relentless battle to drive down prices.
The two chains are very different and will retain their own identities so as not to alienate their core customers. Sainsbury’s has traditionally had a genteel image and is strong in the South of England. Asda has a more cheap and cheerful approach and is a powerhouse in the North.
The real rationale for the tie-up, though, is that both are feeling the chill of competition from German discounters Aldi and Lidl, which have been seizing larger and larger shares of the nation’s shopping basket. Online operators are also a growing threat.
The pressure on wholesale prices following the Brexit referendum, with the fall in the pound ramping up the cost of imported goods, squeezed margins yet further.
Uncertainty over the future of EU workers, who the stores rely on to stock shelves and pick their fruit and vegetables – added to the worries. But is a merger the best solution for the two firms and their consumers?
Those of us with long memories will recall that this is the biggest deal in the grocery sector since Wm Morrison took over Safeway in 2004. That’s not a happy precedent.
Coupe, whose modest demeanour belies a steely streak, could point to his successful takeover of Argos in 2016 as a counter-example, though at £1.4 billion it was a much smaller deal. Argos stores, already inside branches of Sainsbury’s, are likely to sprout up in Asda shops in future.
That’s assuming the deal is waved through. City analysts reckon the Competition and Markets Authority will not block the tie-up, though regulators are likely to order some disposals.
One reason mergers often come adrift is executive ego, as bosses clash over precedence. Here there is cause for hope. The relationship between Coupe and his counterpart at Asda, Roger Burnley, is a close one.
The two grocers are former long-standing colleagues who get on well. They worked side-by-side at Sainsbury’s for years before Burnley moved to Asda last year, where Coupe also worked earlier in his career. After the merger, Coupe will be overall top dog while Burnley will keep his role as the supremo at Asda.
Many questions remain, including how many stores might be closed. One thing is for certain, though: knitting together two large store chains is a task that will test even the most brilliant executives.