Asda and Sainsbury’s are in “advanced discussions” over an estimated £10bn merger.
Sainsbury’s rushed out confirmation of the speculation following reports in Bloomberg and Sky News.
A statement read: “Sainsbury's confirms that it and Walmart are in advanced discussions regarding a combination of the Sainsbury's and Asda businesses.”
A further announcement will be made on Monday 30 April, it said.
The merger of Sainsbury’s and Walmart-owned Asda would result in a massive shake-up of the supermarket sector, creating a combined retailer that would overtake long-running market leader, Tesco.
According to Kantar Worldpanel’s most recent figures, Tesco commands a 27.6% share of the market followed by Sainsbury’s and Asda with shares of 15.8% and 15.6% respectively.
It comes just weeks after Tesco completed a £4bn takeover of Booker, creating a food group with sales of over £57bn.
Catherine Shuttleworth, a retail analyst and CEO of shopper marketing agency Savvy said consolidation of the middle ground between Tesco and the discounters has been expected.
“The middle ground has been squeezed the most by the inevitable march and expandability of the discounters, a reinvigorated Tesco with Booker under its wing is less arrogant and more relevant than with support from suppliers and conversion with shoppers - so the potential of Sainsbury's and Asda joining forces creates a new dimension for the UK grocery market,” she said.
“Whilst it’s unclear what form this merger may ultimately take it was always necessary to consolidate to survive.”
However, other analysts have warned that a merger – if approved by the Competition and Markets Authority – could result in the shuttering of a large number of stores and redundancies on both sides.
Sainsbury’s has 1800 stores and some 800 Argos outlets while Asda has around 600 stores.
Bryan Roberts, a TCC Global analyst, said: “I would expect that there would need to be a chunky disposal programme once the CMA has looked at local competition issues.
Though little has been revealed on how the combined company would be structured, analysts suggested the business model still woulnd’t allow them to compete with where the competition is coming from – the discounters.
“I don’t see what problems this solves. They will still be unable to be cheaper than Aldi and Lidl because they have a unique operating model,” added Roberts.
Scott Corfe, the chief economist at the Social Market Foundation thinktank, also said it was “hard to see this being good for consumers.”
“Recent experience, with the rise of Aldi and Lidl triggering a supermarket price war, supports the case for a less concentrated groceries sector - not a more concentrated one,” he said.
Earlier this week, Asda appointed AMV BBDO to run its £61m advertising business following a surprise review. The agency had worked on Sainsbury's advertising for almost 40 years, until it was moved to Weiden + Kennedy in 2016.