The proposed £10 billion merger between ‘big four’ UK grocery retailers Sainsbury’s and Asda marks a watershed moment in UK retail – and not just because of the size of the deal, but in what it perhaps can achieve.
The deal is primarily driven by the need for the two to combine their might and negotiate cheaper prices from suppliers – a move likely driven by Tesco buying its own wholesale supplier, Booker, back in January and sealing its own price hegemony – but behind this must be the niggling worry about Amazon.
Amazon, which has disrupted so many other retail verticals over the past 20 years and reshaped retail as we know it, especially on mobile, is circling the grocery business. Its purchase of Whole Foods in the US and its growing Fresh home delivery in the UK, France and Germany, is starting to scratch at the grocery sector – and retailers must be worried.
One of the main worries with Amazon is that it too has the clout to negotiate better prices for wholesale goods – possibly even better than a combined Sainsbury’s-Asda – and so that too is a driver of the proposed merger. But there is another worry: Amazon has a lot of the online technology market sewn up and, if it can bring that to bear on grocery, then the market will be well and truly shaken up. This is what Sainsbury’s and Asda are hoping to gird themselves against.
The advantage that the merged super supermarket would have is that not only do Sainsbury’s and Asda have robust online businesses, they also, with Argos, have an Amazon-shaker. They also have the one thing that Amazon lacks: physical presence.
“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,” says Terry Hunter, UK Managing Director, Astound Commerce. “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.”
Couple this with Sainsbury’s extensive plans to introduce ‘scan and go’ technology and in-store GPS, and the deal starts to make more sense.
The combination of massive inventory, colossal buying power, existing online and mobile technology and a physical store presence that covers the UK, could make the combined entity a force to be reckoned with and delivery truly omni-channel marketplace-style retail at scale.
However, making this happen is going to be equally colossal in terms of difficulty. While the competition commission will no doubt have something to say about the deal, the technical challenges of bringing all this together are huge.
“Mobility is changing the retail landscape, influencing the shopping experience, and touching every part of the value chain which in turn, will lead to further opportunities for cost savings and buying efficiencies,” says Leigh Moody, UK Managing Director at SOTI. ““In response to these changes, both Sainsbury’s and Asda will need to consider how they integrate their mobility management strategy across the entire retail chain to ensure operations are streamlined, data is protected and customer demands are met.”
Chris McCullough, CEO and co-founder at Rotageek puts it more firmly: ““This initial announcement shines a light on what a merger between Sainsbury’s and Asda might look like, and it’s great to see technology investments being outlined as key advantages of the combined business. To achieve maximum results, it is critical that these investments are made in the right places. Yes, technology can help deliver more flexible ways of shopping across stores and through digital channels, but that focus can neglect one key component. Improving operations could be the way to provide better experiences for all parties – from customers, to colleagues, and through to management.”
The deal is going to be many months, if not years, in the making and the challenges are going to be large, but potentially, the move could see the birth of a whole new approach to omni-channel retail – and it might, just might, be able to take on Amazon.