Well no one saw that coming!
Just when things were in danger of getting a little quiet, the news of the proposed Sainsbury’s and Asda merger has sparked life into a rather stagnant supermarket industry. Perhaps we should have seen it coming? These things tend to come around every 20 years! But it seems that while we’ve all been watching Amazon’s every move, these two big names have been working on a rather strange arranged marriage, which will undoubtedly consume the sector for the next three years.
In my opinion there are six key points to consider:
- What a deal! Bringing this deal together has been a mammoth task. Both Dave Cheesewright and Mike Coupe deserve congratulations for making this happen, without it leaking to the press, but the less said about the singing, the better…..
- Sainsbury’s and Asda customers are going to get a better deal. I appreciate suppliers are rightly concerned, and buying bigger doesn’t mean buying better, but Walmart and Sainsburys are already confident where savings are going to come from and the share price of the large, multi-national FMCG players reflects this.
- Both businesses had to do something. The long-term picture isn’t great and their current models continue to erode margin. In this regard, the deal makes some sense short-term. However I’m not sure how this will increase their agility to cope with consumers’ changing expectations.
- Culturally the people running the business below Board-level are like chalk and cheese. It’s not a North / South divide, it’s just reality. Individually the supermarkets have been serving different customers, with different values, for a long time and despite the PR, the head offices must come together. The market will dictate it. It feels like the Morrisons and Safeway culture clash all over again.
- Lidl, Aldi, Amazon and Ocado have totally different and advantaged business models – so building a bigger, structurally dis-advantaged model doesn’t seem like a long-term solution, although the city seems to disagree.
- The picture just got clearer for Amazon. They can now buy Waitrose (for the brand), Morrisons (for the supply chain) and cut prices by 30% as they did with Whole Foods in the US. Should this happen, that leaves Tesco and Asda / Sainsbury’s still scratching their heads.
Clearly, these are two highly talented retailers being led by some of the best retail brains in the country. I don’t doubt they will deliver on their cost saving promises to the city but it does feel like a 1990’s style solution (get bigger, squeeze suppliers) to a series of 2020 problems (digital, voice, discounters).
For me, the bigger question still looms large; how can they, and any others in the top four for that matter, be more agile to address changing consumer trends? There are no easy answers. Perhaps we better ask Alexa?!
If you have any thoughts or feedback please feel free to drop David an email