On Friday Tom Espiner, business reporter for “BBC News” took to their website to announce that an agreement may have been reached by Sainsbury and Asda and that this could completely reshape the United Kingdom’s supermarket sector. Sainsbury’s and Asda are eagerly waiting for a response to know if their proposed merger can be a reality. The agreement could prove vital as both parties are looking to increase their market share soon.
If the deal should go through, Tesco, the UK’s biggest supermarket chain would become knocked form its position. Unfortunately, there is a concern that has placed this sector under serious scrutiny. This concern revolves around the fact that shoppers might be faced with less choice as a result of the Sainsbury’s-Asda merger.
US retail giant, Walmart which owns Sainsbury’s is looking to combine the second and third largest supermarket chains in the UK. A Sainsbury’s-Asda merger could make them the largest supermarket chain in the UK. As you already know, the United Kingdom has a competitive grocery market. In fact, while trying to be the biggest supermarket chain, Sainsbury’s and Asda will also be responding to pressure from other stores like Aldi and Lidl.
Richard Lim, business personnel said in response to an interview that “the biggest driver here is about scale”. For instance, if you combine the two businesses, they can request for the lowest prices from their suppliers. The idea being that if one of the two business groups is paying £10 for a tin of beans, while the other is paying a higher price at £11, both supermarkets can now settle for the lower price and pay £10 suggest the BBC report.
Mr. Lim referred to this as “Price harmonization”. He said Sainsbury’s is expecting the merger to pay off for them as they look to make cost savings of £350m. However, MPs have given a warning as regarding the effect of this merger on smaller suppliers. The small suppliers could become squeezed out as a result of the merger because getting the big suppliers to agree will be a difficult one. Regardless of the effect on small suppliers, Chief executive Mike Coupe has said Sainsbury’s would plan the use of savings from large suppliers providing a bulk of its good than squeezing out their smaller counterpart.
Furthermore, this merger would have something special to offer the shoppers as prices will drop by around 10% on many of the regular products purchased daily. However, this is dependent on the outcome of Brexit, which will determine if Sainsbury’s and Asda would be able to pass cost savings onto consumers. Critics have taken to their media to announce their dissatisfaction because Sainsbury’s has not made any information available about which products would see a fall in prices.
The employees of both stores on the other end are unsure of the security of their job. Gary Carter of the GMB union said the uncertainty being faced by members is making them worried and stressed. “People don’t know to what extent the merger will affect their jobs, ” he said. There are a number of questions left unanswered in the minds of people “Will we have a job?’, ‘Will we be made redundant?’, ‘If we have a new job or retain the existing one, who will be our new employer?” On the contrary, Asda employees are worried about their pay rate. They are unsure if they would get pay parity with their colleagues who at the moment have a higher wage rate. As the two firms combine operation, job losses are inevitable, said Mr. Lim. Largely because the motivation for the merger is to drive down costs.[
Another question that pops up in the mind of readers should be “Will they have to sell stores?”. The Sainsbury’s- Asda merger could potentially create a retail giant with over 2800 retail shops to their name in the United Kingdom. However, if the Competition and Markets Authority (CMA) decides that the merger is feasible, then it will come at a cost of about 300 stores which will be up for sale to willing competitors. As soon as the CMA’s provisional decision is made known at the end of April, supermarkets and other interested parties will be able to voice their opinions an interest.
However, should the final decision go against them, the supermarket chains may appeal the decision. Any merger especially of this magnitude is bound to influence the wider market and we are eagerly awaiting the CMA’s decision.