It’s not hard to see why supermarkets Sainsbury’s and Asda have decided on a merger, creating a supermarket behemoth worth a staggering £14.1billion.
You only need to take a look at the current supermarket industry and the reasoning behind the move is fairly self-explanatory. With new kids on the block Lidl and Aldi continuing to move in on Sainsbury’s traditional customer base and the likes of Tesco still dominating a quarter of the market, why wouldn’t Sainsbury’s want to join forces with Asda?
The reasoning is certainly there, but what about the logic? Is this ‘bigger is better’ approach really going to work for the supermarkets?
In terms of the benefits of the merger, cost savings and a boost to buying power are perhaps the most prevalent. The brands plan to continue operating separately, which will, of course, mean that they will benefit from being exposed to two different segments of the market.
Asda serves the lower end, cheaper side of the market, whereas Sainsbury’s caters to a more discerning shopper keen to purchase luxury items.
At present, Tesco holds the greatest proportion of the market, with a 27.6% market share. The combined group of Sainsbury’s and Asda would occupy a fairly hefty 31.4% share of the total UK grocery market, knocking Tesco from its position.
For Asda, the merger would shield them from the damaging effects of discount supermarkets like Aldi and Lidl that have tainted the brand’s ability to market itself as a store offering very low prices.
There’s even speculation that a merger of this kind could deter bargain brands from continuing with their plans for long-term growth.
On top of the benefits for both brands, Sainsbury’s boss Mike Coupe is also adamant that the merger will mean that customers will benefit from significant cost savings, even claiming that customers of both stores will receive a 10% reduction in prices.
Despite all of this, there’s no denying that this is a huge task, one that will mean moving the logistical processes at Asda onto the systems at Sainsbury’s.
Bosses have also promised that no jobs will be lost as a result of the merger which is likely to be a challenge if the target of cutting £500m in costs.