What’s Going On Here?
The country’s second and third largest supermarket chains, Sainsbury’s and Asda, are in advanced merger talks. The combined group would enjoy the largest share of the grocery market in the UK, overtaking current market leaders Tesco.
What Does This Mean?
The combined group would hold 31.4% of the UK grocery market, overtaking Tesco which currently holds 26.7% of the market. If the deal is successful, it would be worth a staggering £10 billion! Although the two groups would merge, it is understood that the two brands will remain separate as they each appeal to a different target market. Sainsbury’s currently holds more favour in the south of England, while Asda is more popular in the north.
Why Should Firms Care?
The decision to merge appears to be based on several factors. The increased market power created by the merger will allow the group to compete against several emerging threats. Firstly, low-cost supermarkets such as Aldi and Lidl have been stealing customers away from the big 4 supermarkets (Tesco, Sainsbury's, Asda, Morrisons). The entry of Amazon into the grocery market has also put considerable pressure on traditional supermarkets to evolve and grow in order to keep a large market share (click here to read our article on that story).
However, it may not be all plain sailing for the merger. Given the potential size of the combined group, there have been calls for the deal to be investigated by the Competition and Markets Authority (CMA). The CMA is a government body that ensures fair competition in markets for the benefit of consumers. This is primarily because if the merger was completed, around 60% of the market share would be held between the merged group and Tesco. This may potentially be considered to have too much of a negative effect on the market as a whole, repressing the chance for other businesses to compete. The merger may still be allowed to go ahead, but there may be concessions. For example, it has been suggested that the group could be forced to sell some stores if they became dominant in a certain area.
It remains to be seen what form the merger will take and if it will go ahead. But it seems the deal will almost definitely hinge on the surviving scrutiny from the CMA.
Article written by Matthew L.
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