Asda, Saintbury’s Merger to Face Regulator Probe

The merger deal between Walmart’s Asda and J Saintbury will have to face regulators’ scrutiny before it can pursue the agreement that is expected to revolutionize the UK retail industry.

The two retail titans will be put under the control of Mike Coupe, who is Saintbury’s chief executive. Coupe will be in charge of vaulting the combination of the two retail giants ahead of Tesco in terms of market share.

The merger deal will also boost their firepower against German discounter Lidl, which is a resurgent Tesco in the food sector, and Aldi. It will also enhance their ability to take on Amazon and many other value-oriented operators in non-food.

“The fact that Asda does a lot of non-food sourcing also makes this more attractive than other tie-ups,” said Bernstein analyst Bruno Monteyne.

“Asda is big in non-food, but bad online. Argos [owned by Saintbury’s] is great online. So there is space, joint buying, and e-commerce argument on the deal for non-food,” he added.

According to Steve Dresser, who is the managing director of consultancy Grocer Insight, the companies’ locations will also work nicely together. He said that Saintbury’s is strong in the south, while Asda has firm footing in the North of England.

On the flip side, the businesses have different bases in terms of consumers. “Asda customers are value driven, so they will be watching for any signs of prices rising,” said Dresser. This may also be the reason why the two giants will probably preserve their distinct brands rather than operating under one fascia.

Meanwhile, Monteyne predicts that the two businesses will gain significant cost savings of up to 600 million pounds per year. For comparison, Ahold and Delhaize, which are European operators that successfully merged in 2016, retained their extensive US interest under their existing brand.

As early as now, there are calls for a competition investigation. This is due to the fact that the combination of the two businesses will give them control of about a third of the grocery market. 

Liberal Democrat leader and business secretary for the 2019-2015 coalition government Vince Cable said that the merger of the second and third-largest players opens up the possibility for “the creation of even more concentrated local monopolies.”

“It is obvious that there must be an investigation by the Competition and Markets Authority, starting immediately,” said Cable.

Meanwhile, Mike Cherry, the chairman of the Federation of Small Businesses, claimed that small suppliers will want a guarantee that the tie-up will not squeeze them “by what would be a business with an unprecedented market share in this sector.”

“The Competition and Markets Authority should look carefully at this proposed merger, including the potential power it would give this huge business to negotiate supplier down or worsen their payment terms,” Cherry added.

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