What will ASDA/Sainsbury’s merger mean for East London?

TWO MAJOR UK supermarkets – ASDA and Sainsbury’s – have agreed terms for a merger in which the two supermarkets will continue as separate outlets but will share a management structure. Should East Londoners be cheering – or crying with despair?

The two partners want us to cheer. They say they won’t be closing stores or sacking people and they estimate prices in store will fall by up to 10%: what’s not to like? To which the savvy shopper should reply “Nice try – but pull the other one.”

Why merge?
The merger is not a direct result of the 2008 global economic crash, but it has come about because of the ripples of that crisis which are still spreading round the world. With consumer spending still low, as a result of jobs losses and low wages, the big supermarket chains are fighting each other to win a bigger share of a low demand for food. This is the only way to keep their profits up and avoid slipping into administration.

Some supermarkets have diversified and tried selling non-food products – but we’re not buying lots of clothes or electrical goods either, so that hasn’t helped them much. All of them have cut costs by installing self-service tills which they have told us is in order to give us a quicker check-out but which are driven by the desire to cut the number of staff on the tills.

Trading in the UK
Into the UK mix has come an attack from two Europe-based supermarket chains: Aldi and Lidl. Both target the less wealthy shopper, with basic and cut price goods. These new chains are targeting ASDA’s customers – while Sainsbury’s customers are going downmarket to Tesco’s or, in a few cases, up to Waitrose.

The new supermarket will still, at least initially, trade as ASDA and Sainsbury’s. US company Walmart, which owns ASDA, will retain a large stake in the new company – probably around 42%.

Sob or cheer?
Sob: Although the new company intends to retain the ASDA headquarters in Leeds, it will merge the management structure – which is bound to lead to job losses.

Sob: Together, ASDA and Sainsbury’s take £1 out of every £3 spent on food shopping in the UK. This means that the Monopolies Commission will have to approve the merger. Although a capitalist economy depends upon competition, in practice individual countries like to regulate the degree of competition to give some basic protection to the consumer. It is therefore likely that the merged company will have to sell off some of the stores operated by the old companies, to reduce the new companies’ potential to dominate the market. There is no guarantee that the stores will be sold as going concerns, with all staff transferring to the new owner – and certainly no guarantee that the stores will remain going concerns. ASDA and Sainsbury’s can easily say they do not intend to sell off stores – because they know it is likely that they will be required to sell outlets if the merger is to be permitted. This will give the new company the reduction in the wage bill it wants to see.

Sob: The new company has estimated that its increased buying power will lead to a reduction in prices of maybe up to 10%. The only way that prices can be reduced on this scale is if the new supermarket pays much less to farmers and food processing companies – leading to job losses and pay cuts in the supply chain that will depress the economy still further.

Sob: Sainsbury’s bought up Argos in 2016, and it has been opening Argos outlets within Sainsbury’s stores since then. Argos outlets are likely to be opened in ASDA stores too. This is likely to lead to the obliteration of separate Argos outlets – with more job losses on the cards. There is no obvious new retailer likely to be looking to occupy the abandoned Argos stores – further decreasing activity, and thus sales, on the High Street.

With the recent announcement that growth in the UK economy is less than had been hoped and may well be virtually insignificant this year, and with the spate of retailer closures seen over the first few months of this year, the economy is not out of the woods yet – and many companies face a far from certain future.

•Read more about it:
Is the economy looking up?
More gloom over UK economy

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