The Competition and Markets Authority could force Asda to shut at least 75 of its 525 UK stores if it approves the retailer’s shock merger with Sainsbury’s, according to GlobalData.
The retail analyst believes any such closures would hand market share to Tesco since two thirds of Asda shoppers also shop at Tesco compared to 53 per cent at Sainsbury’s.
Closures would also be risky since Sainsbury’s customers are already more likely to shop at Tesco than Asda, with 50 per cent shopping at Asda versus 72 per cent at Tesco, according to GlobalData.
The analyst arrived at its estimate of 75 closures by calculating how many Asda stores shared the first half of their postcode plus the first digit of the second half with a Sainsbury’s, excluding Sainsbury’s Local stores.
“We think these 75 stores would be the absolute minimum that the CMA will want disposed of,” said the company’s UK retail research director Patrick O’Brien.
‘‘Overall, we see this as a defensive merger, as a way of halting the long-term decline in profit margins both have suffered,” he added.
“Aldi and Lidl continue to take market share, and Asda and Sainsbury’s may believe that by combining to become the largest UK food retailer, it can battle more effectively against them with greater buying scale. ”
If the merger is cleared by the CMA, Sainsbury’s and Asda will combine to form Britain’s biggest supermarket chain. According to current Kantar data, the pair would have a total share of 31.4 per cent compared to Tesco’s 27.6 per cent.
O’Brien believes Asda’s rationale for the deal is to compete better with Aldi and Lidl on price. “We can see why this deal would be attractive to Asda as their low price stance has been undermined by the discounters,” he said.
“It has been unable to position its brand or customer experience as offering more than the discounters, in the way that Tesco and Morrisons have been able to do, as they never traded on being the cheapest.”
However, O’Brien warned that people should not get “carried away” with Asda and Sainsbury's promises of price cuts.
“The wording of the statement makes it clear that it will aim to reduce prices on some products,” he said. “It’s less a commitment to a price war than an attempt to convince that CMA that the deal is good for competition.”
Commenting on Sainsbury’s motivation for the deal, he warned that “fighting the increasing challenge of the discounters will require more than just cost cutting and increasing buying scale.”
O’Brien also speculated that Sainsbury’s may be considering using the Asda brand to compete head to head with the discounters, following reports in February that Tesco was planning its own discount chain to compete with Aldi and Lidl.
