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.
Sainsbury’s confirmed last night that it is in ‘advanced discussions’ with Asda, owned by American giant Walmart
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.
A £15 billion merger with Asda is undoubtedly a bold and unexpected move by Sainsbury’s chief executive Mike Coupe
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.
Asda stores set to become Sainsbury’s if huge £15BILLION merger is approved that would give giant new supermarket group a THIRD of the UK market
Sainsbury’s and Asda are in talks over an astonishing £15billion mega-merger to create Britain’s biggest supermarket chain.
Sainsbury’s confirmed last night that it is in ‘advanced discussions’ with Asda, owned by American giant Walmart.
Sainsbury’s and Asda have combined sales of £50billion a year and a merger is likely to mean lower prices for shoppers.
The tie-up is seen as a response to the relentless rise of German discounters Aldi and Lidl, which have been chipping away at the big supermarkets over the past few years, as well as online operations such as Ocado.
Lidl and Aldi now have a combined market share of 12.6 per cent – more than fourth-largest grocer Morrisons. Tesco is currently the country’s largest food retailer.
But the combination of Asda and Sainsbury’s, which together employ more than 350,000 staff, will leapfrog into the number one slot.
However, shoppers would initially see little change, with stores still operating under their present names.
But, according to Sky News City editor Mark Kleinman, who broke the story, Wal-Mart could ‘reverse’ Asda into Sainsbury’s – raising the prospect of Asda stores becoming Sainsbury’s. Some analysts also believe that hundreds of stores could close.
The news of the merger has shocked the City and has been greeted with alarm by trade unions, which fear stores will be closed and thousands of jobs lost. There are also concerns over pensions.
The first Asda store is pictured in West Yorkshire. After running under the name of ‘Queens’, the Asquith family merged with Associated Dairies to form Asda (Asquith and Dairies) in 1965
John James Sainsbury and his wife Mary Ann opened the first ever Sainsbury’s store (pictured) in 1869 in London’s Drury Lane (pictured in 1920)
Shopworkers’ union Usdaw is seeking ‘urgent talks’.
John Sainsbury’s (pictured) opened his first store in Drury Lane, London
National officer Joanne McGuinness said: ‘Our priorities will be to protect our members and ensure any deal between the retailers does not impact on their jobs or incomes.’
Sainsbury’s and Asda declined to comment but sources say that there are no plans for large-scale redundancies or shop closures.
One source familiar with the situation said: ‘We all know what Aldi and Lidl have done to the grocery market and everyone is trying to work out what an online future is going to look like.
‘This deal is about creating a long-term, competitive business – one that would ultimately lead to lower prices.’
The combined group would control about a third of the grocery market.
Both have also made significant efforts to add to their food ranges by selling more clothing, electrical and home goods, including Sainsbury’s Tu clothing and Asda’s George.
Asda then & now
- After running under the name of ‘Queens’, the Asquith family merged with Associated Dairies
- Asda’s turnover (including food, clothing, toys etc) is £21.7bn
- The average basket of shopping costs £80.05
- Corporate giant Walmart’s £6.7billion takeover made Asda a subsidiary of the US firm in 1999
- It was Britain’s second-largest supermarket chain from 2003-2014 by market share, but has now slipped to third
- The chain uses the EE network to run its own mobile phone company
Sainsbury’s then & now
- John James Sainsbury opened the first store with his wife Mary Ann with the ethos: ‘Quality perfect, prices lower.’
- Its turnover is currently at £28.4bn
- The average cost of a shopping basket is £81.80
- Qatar’s sovereign wealth fund, the Qatar Investment Authority, is currently the supermarket’s largest shareholder
- Sainsbury’s is the second largest chain of supermarkets in the UK, with Tesco in first place
- Its holding company also owns Argos
All you need to know about Asda’s CEO
Roger Burnley has been the chief executive of Asda since January 2018
Mr Burnley returned to Asda last year, after a decade-long spell at J Sainsbury
Between 1996 and 2002 he was part of the team responsible for integrating Asda into Walmart, after the American group bought the UK business in 1999
Walmart replaced the chief executive of its UK division for the second time in 18 months
Predecessor Sean Clarke, has taken on a new role with Asda’s sister company Walmart
Asda’s CEO Roger Burnley
All you need to know about Sainsbury’s CEO
Mike Coupe has been the Chief Executive of Sainsbury’s since July 2014
He served as an Executive Director since August 2007
Previously Mr Coupe was based at ASDA and Tesco, where he served in a variety of senior management roles
Other positions include the Big Food Group where he was a board director of Big Food Group plc and Managing Director of Iceland Food Stores
Coupe has been credited with the chain’s success in and creating the company’s ‘Brand Match’ campaign
Sainsbury’s CEO Mike Coupe
It is understood Walmart may keep a minority stake in the British business. That means a combined operation could benefit from the Americans’ vast buying power, helping slash prices for electronics, clothes and toys. Walmart declined to comment.
The proposed deal will come under intense scrutiny from the Competition and Markets Authority to make sure the combined business does not monopolise the sector.
However, most analysts expect the merger to go through, although Sainsbury’s and Asda could be told to sell or close stores in areas where they are too dominant.
Retail expert Nick Bubb said: ‘This has come like a bolt from the blue. Sainsbury’s boss Mike Coupe is looking to defend the chain from competition from Tesco, discount retailers such as Aldi and Lidl, and online retailers such as Amazon and Ocado. The deal is a worry for smaller players such as Waitrose and Morrisons.’
The merger would have to be approved by the Competition and Markets Authority (CMA), because the two entities are the second and third largest grocery retailers in the UK.
That’s ASDA price: Some shoppers were concerned about their shopping costs
SASDA? A creative new name for the supermarket
Some say that they would be tempted to shop elsewhere if the merge went ahead
There was support for rival supermarkets such as Tesco
What about the Nectar points? There is concern that hard saved points will be no more
There is promise, however, that a deal could be approved after the CMA’s decision to allow Tesco to take over Booker, the UK’s largest grocery retailer in a deal worth £3.7billion.
Mike Coupe, the chief executive of Sainsbury’s – which is particularly strong in southern England – is said to have been a driving force behind the proposed merger.
Liberal Democrat leader Sir Vince Cable said: ‘The grocery market – and the British shopper – already suffers from the mid-market being dominated by just a handful of big players.
‘What the merger of the second- and third-biggest supermarkets threatens is the creation of even more concentrated local monopolies, so it is obvious that there must be an investigation by the Competition and Markets Authority, starting immediately.’
Q&A on Sainsbury’s and Asda
Q How big would the combined Sainsbury’s and Asda be?
A The 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!
‘Keep the shops well lit’: Last words of the man who founded Sainsbury’s in 1869 are revealed as the chain plans for a possible merger with Asda
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.
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.
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.