Sainsbury's and Asda in talks about £10bn grocery merger

[General Maximus]

Originally Posted by RichardCoulter

I wonder if they mean combining their purchasing functions, distribution etc to increase their buying power and achieve economies of scale, rather than the actual stores themselves?

It is about consolidating costs. Asda will be absorbed into Sainsburys with Walmart becoming a major shareholder in Sainsburys. All Asda stores and depots will close which will shift the sales and revenue to Sainsburys whilst at the same time saving hundreds of millions of pounds in operating costs for Asda. No more staff wages, no more utility costs for the stores, no equipment costs for the logistical side of things etc. The sad thing is that I imagine everyone at Asda will be made redundant as I see no reason why any of the staff would need to be migrated to Sainsburys. The store where I live is massive and the current space given to all the products means that they never sell out during the day, even if sales doubled due to Asda closing (which is 1 mile down the road). They might need to take a couple of extra night staff on to cope with the increased volume of stock coming in but that is it.

[pip08456]

Originally Posted by General Maximus

It is about consolidating costs. Asda will be absorbed into Sainsburys with Walmart becoming a major shareholder in Sainsburys. All Asda stores and depots will close which will shift the sales and revenue to Sainsburys whilst at the same time saving hundreds of millions of pounds in operating costs for Asda. No more staff wages, no more utility costs for the stores, no equipment costs for the logistical side of things etc. The sad thing is that I imagine everyone at Asda will be made redundant as I see no reason why any of the staff would need to be migrated to Sainsburys. The store where I live is massive and the current space given to all the products means that they never sell out during the day, even if sales doubled due to Asda closing (which is 1 mile down the road). They might need to take a couple of extra night staff on to cope with the increased volume of stock coming in but that is it.

Is this a serious business propostion General?

As regards logistics (store supply) ASDA is far bigger than Sainsburys and is ideally placed to take over anything Sainsburys have.

As regards stores, in the area I live there are at least 4 ASDA stores 3-4 times larger than anything (of the 2 I can think of) Sainsbury have.

Of the Sainsburys store and the ASDa one where I live if any store closes it will be the Sainsburys one first because it is not in the correct area of town for maximisation of trade but it's also so small compared to the ASDA store and Morrissons both of which are about 3 miles away but near each other. My Sainsburys is stuck up a side road with no other retail outlets near it. That was good planning.

[denphone]

Asda are strong in the north but not as strong in the south and vice versa for Sainsbury's as we have far more Sainsbury's stores down here then we have Asda stores.

Not a fan of the Daily Mail but their piece on the possible merger is here..

http://www.dailymail.co.uk/news/arti...ks-merger.html

[General Maximus]

Originally Posted by pip08456

Is this a serious business propostion General?

yup, I can assure you that Asda and Walmart don't bother doing anything unless it is making them £££ so just by the fact that they are having these talks means it is serious. Because everything is about £££ the decision is made before they even begin "discussing" something and by the time it ends up in the public eye it is a done deal. Even though they are "in advanced talks" I can guarantee it will go head because they wouldn't have gone to all this effort and expense (with the lawyers and financial accountants etc) if they didn't want it to happen.

In terms of stores your situation is interesting. In most cases Asda stores will close and Sainsburys will takeover because they are better suited and already fit for the future. I won't bore you with the detail but as one of the posts says above, Asda's product availability is rubbish and last time I checked the official stats they are the worst out of the big 4 supermarkets. They are in the process of rolling out a new system in stores which manages how they replenish stock and fill the shelves but Sainsburys has been using it for years and already has a streamlined process in place.
Sainsburys also have a different operating model. Because everything is about cost with Asda they try to cram as much as they can into as little space as possible. They prefer to keep aisle widths as tight as possible so they can squeeze additional aisles into any given shop space thus maximising the number of products they sell. They also keep the amount of space to any given product to a minimum so they can stock more products. The upside to this is smaller stores (despite how large some of them are) which means reduced building costs and land costs etc. The downside is labour costs because you have to have staff in during the day filling the shelves. Because the amount of space each product holds isn't sufficient for daily sales, if somebody didn't fill it up it would empty.
In contrast, Sainsburys do the opposite and build everything around having more than enough stock for any given product on the shelf so it doesn't sell out during the day which means the shelves only have to be filled once at night. This means larger stores of course but I imagine the initial investment with land mitigates the long term labour cost of day staff.
As an example, in my Asda everything on the frozen food department is on one row whether it be chips, vegetables or ice cream which means you are looking at 15-20 bags/boxes per product and they need to constantly fill it up to keep on top of demand. The frozen department in Sainsburys is more than twice as large and chips and vegetables are on 4 rows each to ensure they don't sell out during the day. Each of the lines of ice cream lollies or tubs (e.g. Carte Dor) have an entire shelf each which is 60+ tubs, some are over 100. The space is ridiculous and ensures they don't need to pay for anyone to work during the day and they only need to top it up at night.

Your situation is interesting Pip. If the Asda stores are in a better location compared to the Sainsburys I imagine the Sainsbury's will close completely and they will do a complete remodel of the Asda stores and convert them to Sainsburys spec. Either that or get rid of them all completely and build one or two larger purpose built stores from scratch but that is a lot of extra money and time with regards to planning permission etc but you may find that is the long term plan in certain areas to get the company where it needs to be to compete with Tesco long term.

[Hom3r]

I have never had any issues with either Asda or Sainsburys.

I use 1 of the 3 Tesco's I have in my town for my weekly shop, Sainsburys for top up and our medication is done through the instore pharmacy, and we by some bit bits on Saturday in Asda to get free parking.

[oliver1948uk]

I think in a working class town like Mansfield where I live, if they rename Asda as Sainsbury many of the existing Asda customers will shop at Tesco or Morrison instead.

I don't think decisions have yet been made about renaming stores.

[denphone]

The merger has to happen yet as there is likely to be the biggest competition inquiry in in a long time as there are considerable barriers which have to be overcome first.

https://www.theguardian.com/business...urys-asda-deal

https://www.bloomberg.com/gadfly/art...mean-it-should

https://www.ft.com/content/cc583a5e-...e-22951a2d8493

[General Maximus]

Originally Posted by oliver1948uk

I don't think decisions have yet been made about renaming stores.

I am pretty confident it will transition to Sainsburys and with Walmarts buying power you will see a completely new and reinvented pricing strategy from Sainsburys which will make them cheaper than Tesco on branded products. Own brand may be a bit more expensive because Sainsburys tend to go towards better quality whereas Asda and Tesco prioritise price over quality so they can say they are the cheapest. You will definitely find though that with the volume and turn over of stock Asda get through on branded products, regardless of category, that Sainsbury's will be the cheapest going forward.

Initially there will be a lag phase when Asda stores close. A large portion of the customer base will shift to Tesco believing they are the next cheapest retailer so there won't be an immediate direct transfer of sales to Sainsburys. Over time though once the transition is established, the supply chain in place and marketing campaign on price which will be advertised to death for months, Sainsburys will pull all the Asda customers back. You would think it will take time to do but you would be amazed how fast Walmart works and what they can get done in lightning speed. They won't wait and allow for any sort of period of change in the stores (e.g. taking 6 months to find there feet and work things out) where customers are unsure what is happening and give them a reason to go to Tescos. When it happens it will happen big time and Sainsburys will undergo a massive transformation so that customers know that as Asda closes, they can get the same products at the same cheap prices at Sainsburys and there is no need to shop anywhere else. They will do everything they can to ensure as fewer customers switch to Tesco as possible.

[oliver1948uk]

Walmart in the many years they have owned Asda have not managed to increase its market share. In fact, Sainsbury's has overtaken Asda as the second biggest supermarket. Walmart do not understand the UK market

[denphone]

Originally Posted by oliver1948uk

Walmart in the many years they have owned Asda have not managed to increase its market share. In fact, Sainsbury's has overtaken Asda as the second biggest supermarket. Walmart do not understand the UK market

That is certainly true as Walmart might be the biggest boy in the States but pretty well fails to understand the British consumer and market

[Gavin78]

The snobbery in this thread makes me laugh from the "lower end working class types" shopping at Asda to the Sainsbury's upper class making out it's some kind of prestige place to go shopping. I've shopped at all 3 of the big stores I wouldn't rate Sainsbury's any better than the other 2. If anything I find it's prices are slightly on the higher side compared to the other 2 and the stores seems lacking when it comes to over all products be that food/every day items or electrical.

I've also noticed Sainsbury's tend to have their stores on the posher areas hence the prices.

On the other hand Morrison's tend to be ok to shop at.

[denphone]

Originally Posted by Gavin78

The snobbery in this thread makes me laugh from the "lower end working class types" shopping at Asda to the Sainsbury's upper class making out it's some kind of prestige place to go shopping. I've shopped at all 3 of the big stores I wouldn't rate Sainsbury's any better than the other 2. If anything I find it's prices are slightly on the higher side compared to the other 2 and the stores seems lacking when it comes to over all products be that food/every day items or electrical.

I've also noticed Sainsbury's tend to have their stores on the posher areas hence the prices.

On the other hand Morrison's tend to be ok to shop at.

Well the two Sainsbury's stores in our fair city are certainly not in the posh area Gavin l can tell you..

[General Maximus]

Originally Posted by oliver1948uk

Walmart in the many years they have owned Asda have not managed to increase its market share. In fact, Sainsbury's has overtaken Asda as the second biggest supermarket. Walmart do not understand the UK market

For a while Asda was No. 2 overall when you factored in clothing and homeware sales but I believe they lost the position again and dropped back to 3rd and it is purely due to the number of stores versus Sainsburys and Tescos.

Originally Posted by Gavin78

The snobbery in this thread makes me laugh from the "lower end working class types" shopping at Asda to the Sainsbury's upper class making out it's some kind of prestige place to go shopping.

true but Asda's business model has always been about price. They like to shout about customer service and product quality and loads of other stuff but in all honesty the only thing they have ever cared about is price and being able to advertise themselves as Britain's cheapest supermarket. They think that as long as stuff is cheap enough customers will overlook anything else which they would normally be concerned about. When you are focused on being cheap then you are appealing to a certain demographic. They won the Grocer 33 award something like 13 years running and loved to put all those adverts on tv during The X Factor letting everyone know how cheap they are but they can't do that anymore because Aldi and Lidl have taken over in the price war. This has left Asda in a bit of a rut because price was the only thing they had going for them. They once excelled in customer service and were No. 1 but Sainsburys and Tesco quickly learnt the benefits of that and adopted the same policies. To catch up with the competition they would have to provide better quality own brand products which either means less profit or increased price and they need to build bigger store so there is more space and you aren't playing dodgems with your trolley every time you go shopping. All that means increased cost and less profit which they aren't interested in. Everything is about profit which is why they are happy to merge with Sainsburys, you remove the operating cost of your own business, join an existing business which already has the foundations in place of where you mostly want to be (e.g. shopfloor space and stock process) and then just tweak it slightly to your business strategy for pricing. It is cheaper for Walmart to use Sainsburys than it is to start from scrath and build new Asda stores with increased space. As an example, Asda is the only supermarket which uses decades old monochrome two line checkouts, all the other supermarkets including Waitrose, Aldi and Lidl use colour touch screens tills. The reason why Asda don't make the change is because it will cost millions to do so and in their eyes provide no return (on investment). Upgrading the tills and technology may look good but it isn't going to generate them any extra sales or revenue and if it doesn't make them money then they aren't interested.

[pip08456]

You seem to be stuck on this image of all ASDA stores being smaller than Sainsbury's when this is not the case. There are many areas especially in the north where ASDA stores are larger.

When the merger takes place which I'm sure it will then some ASDA stores will close as will some Sainsbury's ones.

[General Maximus]

Originally Posted by pip08456

some ASDA stores will close as will some Sainsbury's ones.

I imagine that will be the case but it will be a last resort and a huge balancing exercise in cost. If they close a Sainsburys store in favour of an Asda one they will have to completely gut the Asda store and take them down to the brick and redesign everything and put all new everything in from scratch which will cost about £5 million per store. They will do that where they have to and probably have a 3 year conversion plan in place for the company and will take a one off hit to do it to bring all stores in line with their future vision.