According to retail industry insiders, if Sainsbury’s proposed takeover of Argos goes ahead the newly formed high street behemoth will boast 2,000 stores, 100,000 non-food products and a “world leading” distribution network. Mike Coupe, the CEO of Sainsbury’s and perhaps soon to be captain of the newly formed retail alliance has declared that his business will be able to compete with both John Lewis and Amazon . His claim that he can go toe-to-toe with Amazon is a bold one.
On last year’s Black Friday alone, Amazon sold 7.4m items, whereas other UK retailers were hit by a multitude of online problems due to sheer consumer demand. Globally, Amazon has 244 million active users and 44% of web shoppers go directly to the site for product searches. If Amazon’s plans to open physical bookstores and its rumoured desire to acquire Ocado both bear fruit, the ecommerce giant could find itself in an increasingly dominant position. This will provide Sainsbury’s-Argos with an even greater challenge.
Currently, Sainsbury’s, like other major supermarkets, is struggling in the face of pressure from value players such as Aldi and Lidl. It seems that consumers are ditching big weekly shops in favour of frequent spending at the Teutonic discount players. Although Sainsbury’s recovered some ground during its Christmas trading, with Amazon flouting its Pantry service, the acquisition of Argos may be the long-term lifeline it needs.
Argos – multichannel at its core
Argos has multichannel at its core and Sainsbury’s will surely gain a lot by observing Argos’ inner workings. Its stores effectively act as warehouses, placing products throughout the country and nearer to customers. Because Argos has infrastructure and data integration already in place, it has been easy for it to push forward with innovative fulfilment initiatives such as being the first retailer to offer comprehensive same day delivery across the UK.
Fulfilment is a key issue for retailers as consumers appreciate fast delivery for a good price. According to Ampersand’s Retail Delivery and Fulfilment Report, 42% of consumers are prepared to pay up to £5 for same-day delivery. Argos’ current £3.95 charge is well within that, suggesting that it is on to a winning proposition.
Fresh food and same day delivery go hand in hand. Consumers are increasingly expecting on-demand service and groceries are no exception. Being able to tap into Argos’ UK-wide hub-and-spoke fulfilment network could give Sainsbury’s the edge it needs to claim dominance over the other big four.
Looking beyond groceries, combining its product line with Argos will give Sainsbury’s a genuine chance of becoming thought of as a ‘British Amazon’. From eggs to electronics, the retailers’ combined offering will certainly cater to the needs and demands of the majority of UK shoppers.
Sainsbury’s is already thought of as more than just a place to buy food. Sainsbury’s Bank, Sainsbury’s Fuel and Sainsbury’s Energy are all established arms of the business in their own right. Therefore, the leap to other products shouldn’t be too large in the minds of consumers.
Amazon is not invincible
Amazon is not invincible, for example half of the largest 50 retailers are selling their most popular products at a lower price than Amazon, according to the latest IRUK Top 500 report. If Sainsbury’s-Argos can combine a comprehensive product offering with efficient and reliable fulfilment options, it could strike gold.
Being a UK brand is a further string to Sainsbury’s bow. The tax controversies being attracted by US-backed corporate giants such as Amazon are well documented. Being seen as dishonest in the eyes of the British public can have a very damaging effect on a brand and a company’s subsequent performance. Having a 147-year heritage is not something Amazon can directly compete with.
Taking Argos, with its robust multichannel offering, under its wing will certainly boost Sainsbury’s proposition. Amazon has long been feared by the UK’s grocery industry. Throughout his tenure at Tesco, Philip Clarke obsessed over Amazon’s intentions to offer fresh food to British shoppers. The launch of Amazon Pantry means this threat remains very much alive. Once the ink is dry on the Sainsbury’s and Argos deal, it will be interesting to see if Sainsbury’s competitors react by mounting their own acquisition attempts. The next 12 months will likely bear witness to a lot of change in the UK grocery sector and any retailer that intends to remain static and cling to the status quo is likely to come unstuck.
Darryl Adie is managing director of Ampersand
