They may be two of the most recognisable brands in Britain, with a combined 188 years serving shoppers, but industry watchers agree that either Asda or Morrisons – or both – could disappear within a decade. This week, it emerged that Sainsbury’s and Morrisons – the UK’s second- and sixth-largest supermarket chains – had held merger talks between last November and February, before the larger player decided to walk away. News of the potential deal has relaunched speculation that the UK grocery market is now ripe for consolidation and revealed that the Sainsbury’s boss, Simon Roberts – who has been in post for six years – is at least willing to consider the possibility of buying one of his troubled rivals.
Sainsbury’s, which has 600 supermarkets and almost 900 convenience stores, has until recently been seen as wary of trying to revive merger talks with its rivals after its bid to buy Asda for £7bn in 2019 was blocked. However, industry experts say Asda and Morrisons’ owners have held informal talks with each other – and both with Sainsbury’s team – and predict that talks could restart. He suggested that a combination of Asda and Morrisons could happen but was likely to be a weaker deal than a Sainsbury’s takeover of either, as both businesses struggle with costs and interest on debt piles.
The industry has undergone significant change since the collapse of the Sainsbury’s-Asda deal. While riding the wider retail trends towards online shopping and convenience stores, the supermarket groups have been jockeying for market share. Aldi is poised to overtake Asda to become the UK’s third-largest supermarket, with less than 1 percentage point separating them.
Aldi is rapidly opening stores while Asda has struggled to find growth since a £6.8bn, debt-fuelled takeover in 2020 and heavy price competition from the discounters and from its bigger rivals Tesco and Sainsbury’s. Another big change could emerge this month when the UK’s competition watchdog is due to publish its final ruling on whether Aldi and Lidl should now officially be classified as “large grocery retailers” like Tesco, Sainsbury’s, Asda and Morrisons. In August, the Competition and Markets Authority (CMA) said it had found provisionally that Aldi and Lidl no longer qualified as “limited assortment discounters” as they now carry a “full range” of groceries and operate stores larger than 1,000 sq m (10,700 sq ft) across the UK.
The change means the German-owned discounters are now taken into account when assessing competition in different locations. This is the strongest hint yet that the CMA has changed its stance blocking the Sainsbury’s buyout of Asda on the basis that shoppers would be worse off. It also indicates that the CMA’s “balance of competition” – its estimation of the impact of a deal based on drive times for customers around stores – has shifted, meaning Sainsbury’s might have to dispose of dozens fewer stores to gain regulatory clearance for a merger.
A figure of 150 was suggested when it tried to buy Asda. Clive Black, an analyst at Shore Capital and Sainsbury’s broker, says the CMA preliminary ruling indicates “the shape of the pitch has adjusted a little” and “the change encourages another chapter of consolidation”. It is a step-change from 2019 when analysts accused the singing former Sainsbury’s boss Mike Coupe and his board of directors of “arrogance” and “folly” for pursuing Asda.
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