Sainsbury's / Asda - Not looking good (20 February 2019) [2]
20 February 2019
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We have had somewhat of a slow start to the year on this service with varying bits and pieces of news coming through, but the peak period has passed and we can resume our usual 2 or so emails per week looking at the sector at large and the various events within.
The Asda / Sainsbury's deal now looks effectively dead in the water, unless a legal challenge can be mounted which surely just prolongs the inevitable given the CMA's decision which is robust in a sense of 1) prohibition and then 2) the remedies are incredibly difficult to actually achieve and are also near impossible to achieve in the timeframe.
We knew little beyond the bid documents which made sense for the dealmakers for the Asda / Sainsbury's deal, however if you go back in time to Morrisons / Safeway, Sir Ken indicated they'd keep the Safeway format and brand name for inner city stores or ones that were too small for the full Morrisons offer.
Morrisons took over Safeway and found a business that was literally on its knees financially, jacking up margins via hi/lo deals and hadn't invested in the store estate, or equipment for quite some time. I fondly remember a tale where the BDM (dough moulding kit in Bakeries) was so old, parts were no longer available for it.
Thus Morrisons had to spend a small fortune bringing the food preparation areas up to scratch before they started to back invest in adding labour and the various counters / back areas. Thus profit warnings ensued and the decision was made to flog some of the smaller stores that were sited in great areas of London and the South.
However I digress, Asda / Sainsbury's isn't like that as it's a "merger" - although Ken did turn up to Safeway HQ and remind everyone that it was 'a takeover, not a merger' on the day of acquisition... Hard to see that happening this time around, but the respective businesses are experiencing differing fortunes - Asda appear to have turned the corner and are currently performing very nicely in the market itself.
Their 7th consecutive quarter of growth means that for them, they are in recovery mode and continue to push on with a sharper offer and focusing on stronger events, driving footfall in George / clothing and also the wider non food ranges too.
Availability seems a great deal better under Roger Burnley than it had been in previous years and their consistency is better across the stores. Price and offer wise, they have become more competitive and continue to be ever so strong in areas like clothing, toys and non food.
One could always understand Walmart looking to exit the UK, or at least reduce exposure given the fact the market is 'built up' and returns are difficult, especially with discount. However, the merger gave Walmart a chance to remain as a key stakeholder for the enlarged firm and still benefit (presumably) from the expertise on offer in the UK.
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From the Grocery Insight newsletter archive, first sent to subscribers on 20 February 2019. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.