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'You Asda be kidding' - reaction to the proposed merger with Sainsbury's

Asda

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Opinion article

April 30, 2018 | 5 min read

Weighing in on the mooted supermarket merger that broke this weekend between Asda and Sainsbury's is Dom Burch, Asda's former senior director of marketing innovation and new revenue and the founder and managing director of Why Social.

When the news broke on Saturday afternoon I'm sure I wasn't alone in expressing my initial surprise.

Asda sparks review of agency roster

ASDA merger with Sainsbury's - a former comms director's view

My first thought. You Asda be kidding?

Memories of my early days in the Asda press office sprung to mind when in 2004 Safeway was up for grabs and there was an almighty scramble to grab a slice of the pie.

Following a year of investigations, regulators ensured Walmart was the biggest loser, ruling on competition grounds that any further consolidation of the market would be bad for consumers. Hence Asda's fierce Yorkshire rival Morrisons got to play with the big boys for the first time.

14 years on, and the so called big four have been treading water of late, watching in horror as the German discounters, once scoffed at and dismissed, continue to nibble away at their dominance.

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Aldi, Lidl and the like now account for 12% of UK's weekly grocery spend, roughly three times what they generated back then.

So will this deal be waved through, and what does a combined business look like?

According to the Stock Exchange announcement today, both the Sainsbury's and Asda brands will remain, with no intention to close stores.

Some have questioned how that can work in practice.

But they need look no further than Walmart de Mexico or Walmart Brazil, where it operates multiple tiers of retail brands serving different segments of the market. In Brazil for instance Walmart has a dizzying array of 13 different fascias*, so the prospect of JS, Asda, Argos and perhaps the re-emergence of standalone George will not be a daunting one in Bentonville, Arkansas.

Rumours of an Asda sell off have been rife for more than a decade, with US investors often questioning the value of Asda in the wider international investment portfolio.

Stagnant sales and squeezed margins in the world's most competitive grocery market won't have helped quiet the dissenting investor voices.

Others have cited the continuous brain drain of Asda executives, poached from the UK to the US, as further evidence of it extracting what it can in advance sanctioning this move.

The potential merger will result in Walmart holding 42% of the issued share capital of the Combined Business, and it will receive nearly £3bn in cash. Hence it seems a shrewd move by senior management.

Although billed as a long-term shareholder and partner, its voting rights will be capped at under 30%. A measured UK exit is now seemingly underway.

In reality, Walmart has struggled to win in the UK.

In spite of twenty years of trying and billions of inward investment, Tesco has maintained its grip at the top, JS has regained its number two position, and the once proud price leader Asda has been caught somewhere in the middle without a coherent strategy or obvious way out.

As the old adage goes, there's never a dull day in retail. Well the next 365 just got a whole lot more interesting.

*In Brazil its retail brands include: BIG, Bompreço, Hiper Bompreço, Magazine, Maxxi, Mercadorama, Nacional, Sam’s Club, Hiper TodoDia, Supermercado TodoDia, TodoDia, Walmart and Walmart Posto.

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