Sainsbury and Walmart’s Asda to create grocery powerhouse
J Sainsbury Plc, the second largest U.K. supermarket chain, has agreed to acquire Asda, the third largest U.K. grocer, owned by Walmart.
The tie-up would be worth over £10 billion ($13.8 billion), making the combination larger than Tesco, Britain’s biggest grocery chain. Asda is expected to continue to trade under its own brand, separate from the more upmarket Sainsbury’s.
Both chains have been struggling with the aggressive expansion of Aldi and Lidl in the U.K., margin pressures bought on by Brexit and a rapid shift to online selling.
Walmart, which acquired Asda in 1999, is expected to own approximately 40 percent of the combined company, which will be led by Sainsbury’s CEO, Mike Coupe, who used to work for Asda.
Walmart has reportedly been looking to offload Asda for two years and the move would follow similar efforts to retreat from international markets. The deal also aligns with a recent shift to partner with local players in exploring overseas expansion, such as one with JD.com in China.
Asda has a sizeable non-food and clothing business led by its George label that could help Sainsbury, which also owns Argos home goods, better compete against John Lewis and Amazon.com. But having Walmart still involved will provide even greater clout with suppliers for the Sainsbury/Asda combination. Asda has lost its title as the low-price leader with the arrival of Aldi and Lidl.
Neil Saunders, managing director of GlobalData Retail and a RetailWire BrainTrust panelist, told CNN the combined entity would have a 22 percent share of the U.K.’s food and grocery market, well above the 17.7 percent share of Tesco. He said, “Such a dominant position in grocery, along with the combined non-food business which includes Sainsbury’s Argos division, would create many opportunities for cost savings and buying efficiencies.”
However, the decision to keep the nameplates separate will limit the possible synergies and some doubt the move will boost both chain’s value proposition.
“There’s undoubtedly some scale benefits in buying,” Bryan Roberts, an analyst at TCC Global, told Bloomberg. Still, a combined entity “doesn’t get rid of the problems both companies face. They still won’t be cheaper than Lidl or Aldi.”
- Sainsbury Considers Buying Asda From Walmart – Bloomberg
- Sainsbury’s, Walmart’s Asda to create UK supermarket powerhouse – Reuters
- British supermarket chain Sainsbury’s in ‘advanced’ merger talks with Walmart’s Asda – CNN
DISCUSSION QUESTIONS: How would you assess the pros and cons of an Asda and Sainsbury’s merger? Does the deal make sense for Walmart?