UK Supermarket giants merger talks but will Australia be next?

Posted by AFN Staff Writers on 30th April 2018

Sainsbury’s and Asda, the UK’s second and third largest supermarket chains, are currently in the middle of merger talks.

If the merger goes ahead, the two businesses combined would have a 31.4 per cent share of the UK supermarket industry.

The new business would have almost 3,000 stores and an average annual sales turnover of around 50 billion pounds.

Both Sainsbury’s and Asda together cover a wide range of product categories outside of grocery including clothes, furniture and optical services.

The merger comes after a period where German discount supermarkets Aldi and Lidl have set up shop in the UK offering local shoppers a wide range of cheap products.

Amazon is also operational in the UK, offering an online shopping option.

Will the merger be allowed to go ahead?

Questions have been raised as to whether the UK’s market regulator, Competition and Markets Authority (CMA), will approve a merger between Sainsbury and Asda.

Although new competition has entered the UK market – Aldi, Lidl and Amazon – there are still only four major supermarkets in the UK, two of which are Sainsbury and Asda. The other two are Tesco and Morrisons.

A financial reporter in The Guardian Nils Pratley, says a merger plan of the two companies will result in the UK’s “biggest competition inquiry in years”. He believes the argument that Aldi, Lidl and Amazon constitute enough competition in the UK to keep things fair would be a hard argument for the regulator to swallow.

There is also concern of big job losses since a merger would eliminate doubling up of many positions.

Could similar merger activities occur in Australia? Australian Food News comment:

  1. News of a possible Sainsbury and Asda merger comes after Wesfarmers announced in March 2018 that it plans to spin-off Coles supermarkets. This UK proposed merger spurs the question whether a similar supermarket merger could happen in Australia.
  2. With the Australian supermarket landscape similar to the UK’s, Australia’s regulator, the Australian Competition and Consumer Commission (ACCC) would be heavily involved in any similar proposal.
  3. The growth of online grocery shopping presents a major challenge. Some are predicting a retail catastrophe. This may result into a downturn for shopping mall traffic. The other recent trends encouraging fresh food consumption, local production and marketing emphasis on fresh and local produce as opposed to packaged foods with preservatives and long food supply chains also present new challenges to the major supermarkets.
  4.  A merger is usually an opportunity for industry rationalisation in an era of great market shifts and big technological changes.

It would also no doubt find it hard to swallow that such a merger would be fair game in Australia with the country’s supermarket landscape also dominated by only a small number of players.

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