The proposed £10 billion Sainsbury’s-Asda merger has sent the retail world into a spin this week, as it marks one of the biggest reverse take-overs in the sector for years, probably fires the starting gun on a round of mergers and acquisitions across the sector and, in this specific case I imagine, has farmers across the country quaking in their wellies.
The move by the two retailers is undoubtedly driven by increasing their combined buying power: together they can order more from suppliers and so get a better deal, part of which they can pass on to their customers and take a larger combined share of the grocery market. This may well come to the detriment of already hard pressed – and soon-to-be non-EU backed farmers and other suppliers, but that’s progress.
However, the spectre of Amazon must loom over this deal too. Like the Roman army, Amazon invades a region, crushes it, absorbs it and moves on. It is in the early stages of doing this in the grocery sector and all grocers should be worried – even the proposed Sainsbury-Asda (Sainsda? Asbury’s?) behemoth.
Like the proposed merger, Amazon too can undercut buying in the grocery market with similar detrimental impacts on farmers, suppliers and other retailers, so there has to be an element of Sainsbury’s and Asda trying to get there first – or at least making sure that between them they also have a big chair at the buying table when Amazon does swoop.
“The ‘big four’ have nervously watched on as Amazon has touted the idea of opening similar stores in the UK – they will know that the US retailer will be able to outmanoeuvre them and undercut them every step of the way.”
– Terry Hunter, UK Managing Director, Astound Commerce
Morrisons, let’s not forget, has tried to get ahead of the game by partnering with Amazon to help it fulfil online grocery deliveries – further proof that that supermarkets are having to adopt new strategies to fend off the competition.
So aside from helping to match or negate Amazon’s buying power, what other Amazon-beating elements would the merger bring to the two retailers? For starters, the combined companies would be huge, with a huge physical footprint in the UK alone – without factoring in any overseas properties the two have – which is something Amazon may or may not be dreaming of.
Secondly, Sainsbury’s has quite an advanced online offering, especially with its purchase of Argos.
Taken together, these two things make the combined companies look like a solid omni-channel proposition, beautifully combining a vast range of goods – let’s not forget both sell way more than just food – a vast range of brands and a vast range of channels through which to sell them all.
In some ways, the merger could make the company a sort of omni-channel Amazon if it plays its cards right, adding the physical dimension to the online marketplace and ecommerce model.
“One of Sainsbury’s strengths lies in the fact that it has a strong online offering through its acquisition of Argos in 2016. As well as this, the retailer announced last week that it was expanding its tech team by nearly 25%. This ongoing commitment to expanding its omnichannel offering is interesting and shows an awareness of the threat from across the Atlantic. If the deal goes through, combining Sainsbury’s online strengths with Asda’s large physical stores will be the very definition of an omnichannel approach. This is further proof that investing in a digital strategy is paramount for even the most traditional retailers. As Sainsbury’s and Asda have proven, retailers need to invest and invest now.”
– Terry Hunter, UK Managing Director, Astound Commerce
But the merged companies will face an uphill struggle. While Amazon has very deep pockets and motors ahead with new customer service techniques, Asda and Sainsbury’s – should the deal even go ahead, there is the competition commissioner to get past yet – face a lengthy process of trying to merge their existing technologies around supply chain and order management, let alone looking at how to implement new technology in store and to ‘reinvent’ omni-channel retail.
“The bottleneck is often closer to stores than can be seen from head office. Weighing up backend processes and systems, and basic day-to-day process like scheduling, can help identify more targeted areas for investment. It can be tempting to bring in flashy in-store tech to entice customers, but these don’t always deliver the anticipated impact on profit and revenue. Yet perfecting operations can do just that. Sainsbury’s often talk about their customer service as their key differentiator. To protect that amidst this change, the business must deliver the necessary efficiencies through upgrading backend processes. This is the best way to secure their top position into the future.”
– Chris McCullough, CEO and co-founder at Rotageek
Investment is going to go into back-end tech to make the two combined companies run more efficiently, especially as the primary driver for this move seems to be to increase buying power and take market share from its existing competitors, not Amazon. The time it will take to make this happen could well see Amazon already making significant high-tech inroads into the market.
