Sainsbury’s is “being good to itself” with its proposed acquisition of Asda

The recent announcement that Sainsbury’s has tabled a USD 10bn offer for Asda, the UK supermarket chain owned by US retailing behemoth Walmart, brought back memories of Morrisons USD 7bn takeover of Safeway over 14 years ago, back in 2004.

At the time, this was a daring move by one of the big four supermarkets (most supermarket shoppers were not aware of Aldi and Lidl at this point) to try increase its market share against Tesco, Sainsburys and Asda. The deal attracted offers from all the other big three supermarkets; however, it was Morrisons that got clearance from the UK competition authority to proceed with its offer, subject to the disposal of some Safeway stores in towns where a Morrisons was close by.

Jump forward 14 years and the UK supermarket landscape has changed considerably. Initially, in the mid- to late-noughties, it was the luxury supermarket brands like Waitrose that started to eat into the market share of the big four; however, now it is discounters such as Aldi and Lidl which are increasing their share of the spend by British shoppers’ year-on-year. The days of families doing all their shopping in one supermarket seem to be long gone.

That is why this deal is so interesting: will the potential merger of the number two and number three retailers by market share in the UK even be allowed to happen? I do not believe Sainsbury’s would have launched such an offer if the company was not confident regulators would not let the deal proceed. Sainsbury’s will no doubt take confidence from the fact Tesco’s acquisition of Booker was allowed through, untouched, by the UK’s Competition and Market’s authority. Additionally, I am sure Sainsbury’s would also suppose that while the rise of Aldi and Lidl has hurt it financially, these additional competitors mean the British shopper has far more choice of retailers now than back in 2004, which could remove the issue of “four becoming three”.