The grocery market faces stiff competition in the United Kingdom from four significant players. Tesco enjoys the most significant share hence the need for other market players to fight for their space in the market.
As a result, ASDA and Sainsbury’s have shown interest to merge.
ASDA Stores is a British owned retailer supermarket founded in 1965 as a branch of Walmart. The supermarket also offers financial and mobile phone services.
Sainsbury’s was founded in 1869 and has grown to the second most abundant supermarket in the UK with a market share of 16.9% in the region. The store operates supermarkets, bank, and Argos.
The merger of the two major competing supermarkets in the UK is likely to have a significant impact on the grocery market. The purpose of this essay is to explore ASDA and Sainsbury’s Merger in the United Kingdom focusing on the dynamics, benefits, and potential outcomes.
The merger between ASDA and Sainsbury’s is likely to lead to stiffer competition in the grocery market. The two supermarkets are likely to surpass the market share of Tesco. After Tesco was approved to takeover wholesaler Booker, Sainsbury’s had a significant loss in the market share.
Therefore, the new merger will help the stores have a competitive advantage (Warner 1). ASDA will benefit from Sainsbury’s strengths in the private sector and battle against discounters if the merger is successful.
Warmer states that Sainsbury’s will benefit from ASDA’s freehold property hence reducing the money it would spend on rent.
The Competition Market Authority which will investigate the request is likely to consider if the requested merger is against the interest of the consumer.
If the merger is authorised, Walmart will have a market share of 42% hence giving the Company a strong hand in negotiating with the suppliers.
Consequently, the suppliers will be worried about a small bargaining margin and reduced market. Also, the issue of reducing prices for the regularly purchased items which are at the core of the merger deal is likely to affect the suppliers.
Some analysts, however, believe that with the stiff competition in the grocery market, reduction of prices is not a practical idea due to lack of opportunity to recover the margin.
Since the merger between ASDA and Sainsbury’s is likely to take one year to be approved by Competition Market Authority, Tesco and Morrisons could take advantage of the distraction period between the two to strike a better deal with the suppliers.
Such a move will help them secure suppliers before ahead of the two supermarkets. According to Coyne, Morrisons will have a smaller market share after the merge, but since it owns its stores and has low debts, the store is not likely to have major challenges in its operations.
Moreover, Amazon may target acquiring Morrisons since they have an alliance in the pantry and that would be a benefit, Morrisons.
Moreover, ASDA-Sainsbury’s merger is likely to benefit the consumers since the stores will invest in quality, lowered prices, technology, and range.
Customers will experience more flexible ways of shopping including online.
Moreover, the idea of reducing prices on regularly purchased items will help customers save money. Additionally, the merger will create a leading retailer of clothing, groceries, and other merchandise leading to higher revenue.
Finally, it is imperative to note that the merger between Sainsbury’s and ASDA is still waiting for approval from the Competition Market Authority.
The merger would have negative and positive impacts on the economy of UK. Competition among market players is likely to be stiffer with reduced item prices.
Suppliers are likely to face reduced market margin. The two stores are likely to enjoy a broader market share and a competitive advantage. Overall, both parties are likely to gain from the merger considerably.