Sainsbury's/Asda merger

Well, this big story has been rumbling for a few days. It has gone down very well with the Sainsbury's share price. Not surprising really as although this is called a merger it is not at all. Sainsbury's management will take over Asda and in return, Asda's owner, the US retailer Walmart, will get around 42% of Sainsbury's.


Of course, the ignorant Labour rep, Rebecca Long-Bailey claims that this will be bad for customers and workers - parroting the Union line as usual. But wait!


Is she right here, in the stopped clock right twice a day sense? A combined business will have a 30% market share not far off the size of Tesco. The UK will have gone in 15 years from 6 large supermarkets to only three, yes there have been new entrants like Aldi and Lidl (and Amazon), but still a huge drop. As a good capitalist, I am always sympathetic to the view that large corporates will try their best to create oligopolies where possible to the detriment of their customers - it has always been this way.


In contrast, the two companies clearly think they will get this through any Government oversight. They claim that with a lower market share than Tesco and disparate stores which do not compete in local markets (north vs south) it will be fine. Indeed, prices will be lower (of course, this is due to Brexit not the merger, but they don't find room to say that).


Overall though, the UK has a very competitive food market and the big dislocation is online and big-box German style discounters, neither of which factors is addressed by this merger. This is a classic defensive move to try to get some benefits from shared buying and shared IT services - so bad for suppliers and for non-customer facing staff. It won't really help in the long-term with the changes being faced by supermarkets that have huge out-of-town warehouses that don't meet the needs of the internet savvy consumers anymore.


So is this a conspiracy against the supply chain and customers? Probably.


Will this work though? No, too much change in the market caused by the internet for it to be more than a bandage for a few years.