Sainsbury's-Asda merger is off, prospect of budget fashion powerhouse ends
The Sainsbury’s-Asda merger deal is off following the final decision by the UK’s Competition and Markets Authority (CMA) that blocked it on the grounds that prices could rise.
While the CMA has at times shown a bizarre lack of understanding about how retailers arrive at their pricing, there will be some relief among suppliers and the rest of the retail sector as the merger had promised to create the UK’s biggest and most powerful supermarkets chain.
At the same time it would have created an affordable fashion and lifestyle powerhouse. Both the chains have strong fashion and general merchandise businesses, Sainsbury’s with its Tu Clothing offer and Asda via its George line.
Sainsbury's CEO, Mike Coupe, said: “The specific reason for wanting to merge was to lower prices for customers. The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers' pockets. Sainsbury's is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.”
Sainsbury’s and Asda had originally been confident that competition concerns wouldn’t stymie the merger given the huge size of Tesco and how its takeover of supplier Booker went through easily and also given how fast German chains Aldi and Lidl are growing in the UK.
But clearly, the two retailers didn’t make a convincing enough case about prices so what happens now? Sainsbury’s has conceded defeat and said it won’t appeal against the decision. Analysts are saying it’s a “disaster” for the company and for Mike Coupe, although on Thursday he appeared resolute about continuing in his role and driving the company forward.
And Asda? There had been some speculation that it would be sold with fears of a cost-slashing private equity takeover. But Walmart appears to have committed to the brand. International division CEO Judith McKenna said its focus is “continuing to position Asda as a strong UK retailer delivering for customers [and] Walmart will ensure Asda has the resources it needs to achieve that.”
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