Why Sainsbury's is eyeing a full Argos takeover 12 months after digital outlet tie-up

Sainsbury's has confirmed that it made an unsuccessful takeover bid for Home Retail Group - the owner of Argos and Homebase - last November in an effort to "create a food and non-food retailer of choice for customers".

The cash and shares bid was rejected but Sainsbury's said it is now "considering its position" although it also stated there was no certainty of a future offer.

It comes almost 12 months after the grocer first paired with Argos to open 10 digital stores in its supermarkets. Customers were given access over 20,000 non-grocery products in-store which they could reserve via tablets for home delivery, or collection within 48 hours.

Sainsbury's is looking to take this further, saying in a statement (5 January) that a merger of two of the UK's leading retail businesses would be "an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation."

If an aquistion were to go ahead, Sainsbury's would be able to tap into the Home Retail Group's online infrastrucure. The company has invested heavily in turning Argos into a leading digital retailer which, in more recent attempts to compete with the likes of Amazon, saw it introduce a same-day home delivery service.

Amazon's entry into the grocery market is expected this year, thus making it no surprise that Sainsbury's has been quick to highlight that a merger with Home Retail would give both "an enhanced supply and delivery network", as well as a stronger presence across food and grocery, clothing, plus other general merchandise.

The statement to the City also added that it would "deliver revenue synergy potential through the ability to sell to each other's customers, including the operation of Argos concessions within Sainsbury's stores, and the sale of Sainsbury's products and services through Argos' network."

Speaking to The Drum, Pats McDonald, chief strategy officer at digital agency Isobar - which has built a leading division advising on e-commerce trends - added that the arrival of Amazon Pantry into the UK market and the spectre of Amazon Flex promising one hour delivery windows means UK grocers need to find new ways to meet the needs of the on-demand generation.

"Given emerging trends in the retail sector, this feels like an interesting move. The boundaries between online and offline retail are being eroded and Argos' click and collect model is looking surprisingly prescient," she explained.

"New delivery models have raised consumer expectations and same day delivery is now the new normal. The rise of businesses such as Doddle and Pass my Parcel show the potential of a high street network in enabling businesses to meet those expectations."

However, little was said of what ailing DIY-chain Homebase would offer the grocer, leading to speculation that the division could be sold off if such a deal were to go ahead.

Homebase was originally founded by the supermarket chain as a joint venture with Belgian retailer GB-Inno-BM in 1979 but was sold 21 years later for £969m.

On the news, Home Retail Group's shares leapt 25 per cent while Sainsbury's fell five per cent.

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