BLM takes a look at the key facts that show the potential implications of this important deal. Sainsbury's confirmed on Saturday that it and Walmart, the world's largest retailer, were in advanced discussions regarding a combination of the Sainsbury's and Asda businesses, the UK's No 2 and 3 grocers.
By merging, Sainsbury's and Asda now have 31.4% of the market with the now next biggest retailer, Tesco, being knocked from the top spot to holding a 27.6% market share. Combined revenue for the two businesses hit £51 billion (roughly $71 billion) a year ago. As a value supermarket, Asda has been under significant pressure as the German discounters have grown their market share.
The UK Competition and Markets Authority previous year approved Tesco's takeover of wholesaler Booker, saying the deal would not reduce competition in the sector, which is known for its razor-thin margins and frequent price wars.
With a market share of this size, it would without doubt raise concerns and certainly trigger a competition investigation.
The second largest chain of supermarkets in the United Kingdom, J Sainsbury Plc announced that it is planning to acquire Walmart Inc's Asda for $10 billion.
Sainsbury's said that, with the added scale, the combined company expects to lower prices by 10% on numerous products that customers buy regularly.
Instead, he said cost savings of at least £500m would allow the new group, which will account for almost £1 in every three £3 spent on groceries, to reduce prices by a tenth on many "everyday items".
Britain's Competition and Markets Authority (CMA) said it was likely to review the deal, which some analysts doubted would pass without a major divestment of overlapping stores. Even after factoring in 750 million pounds of integration costs and extra capital spending, Sainsbury's makes a 12 percent return on its investment, based on Asda's 2017 operating profit of 720 million pounds. Those cut costs will be handed on to consumers.
Both Asda and Sainsbury have struggled in sales growth and that has weighed on the ability of them to get less expensive deals with their suppliers.
The merger will result in falling prices at both Sainsbury's and Asda.
"The proposed merger should be investigated by the Competition and Markets Authority as a matter of urgency". Coupe said. Following the merger, Argos will open outlets within Asda stores, the firms said.
The combination joins Asda's strong presence in northern England with Sainsbury's larger operation in the south, creating a company with more than 2,800 stores across the country and 51 billion pounds of annual revenue.
He vowed to ensure that the deal also benefits the supermarkets' suppliers, who often complain of being squeezed on price.
A lot of people see Asda as being more affordable for them than Sainsbury's.
John Colley, professor at Warwick Business School, believes that jobs will be lost. The U.K. grocery market in recent years has been locked in aggressive price wars that have trimmed retailer margins.
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