Sainsbury’s vows to slash prices after Asda merger

Sainsbury’s claimed it would cut prices by 10% under a merger with Asda, as it confirmed terms of a deal which would hand the Leeds-based supermarket’s US owner Walmart nearly £3bn in cash and a near-42% stake in the combined business.

The companies said there were no planned store closures as a result of the deal which would value Asda at £7.3bn, maintaining both retail brands in a network of more than 2,800 stores.

Quick guide

UK’s top three supermarkets

1) Tesco

Head office Welwyn Garden City

Chief executive Dave Lewis

Stores 6,809 worldwide/3,400 UK

Employees 460,000/310,000 UK

Market share 27.6%

Annual sales £51bn

Profit last year £1.3bn

Shopper visits a week 79m (worldwide)

2) Sainsbury’s

Head office London

Chief executive Mike Coupe

Stores 1,414 grocers (+ 800 Argos)

Employees 195,000

Market share 15.8%

Annual sales £29bn

Profit last year £503m

Shopper visits a week 26m

3) Asda

Head office Leeds

Chief executive Roger Burnley

Stores 642

Employees 165,000

Market share 15.6%

Annual sales £22bn (2016)

Profit last year n/a

Shopper visits a week 18m

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Together Sainsbury’s and Asda would have a market share of 31.4%

Tesco, Sainsbury’s, Asda and Morrisons have all lost market share over the past decade as Aldi, Lidl and Waitrose have made gains

March 2018

March 2008

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Tesco 27.6% (2018)

Sainsbury’s 15.8

Asda 15.6

Morrisons 10.4

Aldi 7.3

Co-op 6.0

Lidl 5.3

Waitrose 5.0

Iceland 2.1

Sainsbury’s & Asda 31.4

Guardian Graphic | Source: Kantar Worldpanel

That assertion is likely to be a surprise to regulators as the merger of the UK’s second and third largest retailers raises huge competition concerns. The deal is expected to trigger a major retail competition inquiry, the likes of which has not seen since Morrisons moved on Safeway in 2003.

Sainsbury’s and Asda promise price cuts after agreeing deal to create UK’s biggest supermarket chain – business live

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Mike Coupe, the Sainsbury’s chief executive who plans to lead the merged business, said the deal was a “transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future”.

Tesco has the largest number of stores with 3,400 in the UK

UK

stores

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1,000

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Sainsbury’s

Asda

Guardian Graphic | Source: Kantar Worldpanel

He said the merger would save at least £500m in costs, largely as a result of improved efficiency and better deals with suppliers.

Asda will continue to be run from Leeds with its own chief executive, likely to be current boss Roger Burnley, who only recently joined Asda from Sainsbury’s.

Sainsbury’s and Asda combined employ 360,000 people in the UK

Standfirst …

stores

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Sainsbury’s

Asda

Guardian Graphic | Source: Kantar Worldpanel

The deal was announced as Sainsbury’s revealed a near-19% fall in pretax profits for the year to 10 March to £409m as sales rose 9% to £31.7bn.

Coupe said the merger would “create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy”.

Annual sales in the UK

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stores

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Tesco

Sainsbury’s

Asda

Guardian Graphic | Source: Kantar Worldpanel

“Having worked at Asda before Sainsbury’s,” he added, “I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”

The deal will be seen as a way for Walmart, which bought Asda nearly 20 years ago, to take a step back from the UK market where it is struggling to compete with the rise of discounters Aldi and Lidl as well as Tesco, the UK’s biggest supermarket chain which controls almost a third of the grocery market.

But in a statement issued on Monday morning, Sainsbury’s said Walmart would remain a long-term shareholder in the combined group with two representatives on its board.

Judith McKenna, the chief executive of Walmart International, said: “We believe this combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive UK market.”