CMA merger block leaves Sainsbury’s CEO out of the money and into a difficult position, says GlobalData

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The decision by the Competition and Markets Authority (CMA) to block the ASDA – Sainsbury’s merger puts the heat on Sainsbury’s CEO Mike Coupe, according to Patrick O’Brien, UK retail research director at GlobalData. “Whatever the rights or wrongs of the CMA’s decision, he appears to have wasted a year chasing an impossible dream while its competitors took full advantage of its distraction,” O’Brien said. “Its results over the last year have been poor, with store standards falling noticeably, and it must now refocus on retail basics rather than chase another big acquisition.

“One of the key mistakes Coupe made was in failing to offer any assurances on price cuts until the CMA’s devastating provisional findings in February: it built the rationale for the merger on the rather vague notion that it would reduce prices by 10% by putting pressure on major suppliers, though it didn’t make it clear how many products this would include. It only made some assurances of audited price investment later, but this might have had more sway if it had offered them at the start.

“The confidence Coupe placed in getting the deal past the CMA in light of its previous – generous – decision to allow Tesco to buy Booker looks like a bad misjudgement now. Mike Coupe may feel hard done by, but the CMA made clear that the Tesco-Booker deal was passed because it considered the acquisition to be a vertical one, by a retailer of a wholesaler, and so viewed that the combination did not significantly damage the competitiveness of either market. The rights and wrongs of that decision are debateable but it looks difficult for Coupe to argue that the CMA’s decision then is in direct contradiction of its decision regarding ASDA/Sainsbury’s now.

“ASDA’s performance does not give as much cause for concern as Sainsbury’s, which itself puts more pressure on Coupe. Why has ASDA been able to manage the distraction of the merger so much better?

“We do not believe Walmart will want to keep ASDA as it is now, and may look to sell ASDA to other suitors, but it would look unlikely that other major players in the UK would consider it, given the strictness the CMA has displayed. It opens the possibility of private equity or floating the business, or a foreign retailer entering the market. Amazon will always be speculated about, but we do not believe that taking on a major physical food presence in the UK fits with its strategy, despite the Whole Foods deal in the US, which was a distressed (i.e. cheap) business, more focussed on affluent customers.”

William Hall, strategy director, global branding and design agency, Landor agreed:  “Although today’s announcement is what many expected, the decision will be of particular concern to those in the driving seat at Sainsbury’s.

“It needs to re-establish its place in an increasingly polarised market, with discounters like Aldi and Lidl on one side of the spectrum and premium players like Waitrose on the other. Sainsbury’s finds itself somewhere in the ‘murky middle’, lacking relevance for the modern shopper and becoming increasingly difficult to tell apart from the rest of the crowd. It needs to see today’s announcement as a springboard for change, by reconnecting with its heritage as a company that understands what its traditional customer base wants. Asda, on the other hand, has a clear and focused proposition for its customers – saving you money so that you can live better.

“One thing’s for sure, though. There’ll be no joyous singing from Mr Coupe this time around.”

Catherine Shuttleworth, CEO at Savvy, said: “As anticipated, the CMA have outright rejected the Sainsbury ASDA deal this morning on the basis that they believe that prices would increase for customers in both food and fuel. They say that they have looked at the changed dynamic of the marketplace which makes it all the more surprising that they really think prices would go up. So back to the drawing board for both parties – with neither side sounding happy at the outcome. Let’s now see what the law of unintended consequences could bring to the grocery market.”

However, GMB, the trade union for ASDA workers, welcomed today’s ruling.

The decision will provide reassurance for tens of thousands of GMB ASDA members who have been worried about their futures since the merger was announced last year, GMB said.

Tim Roache, GMB general secretary, said: “For Asda workers, this is the right decision after the CMA’s provisional findings.

“Swathes of stores and depots would have to have been sold off, with jobs put at risk and no real benefit for customers or communities. 

“The workforce has been through months of uncertainty, worrying about what’s going to happen and wondering if their stores or depots would be sold from under them. 

“It’s time for Asda to move on, and to give some stability and security to the staff who work day in, day out to make the company profitable.”