Blackfriar: Morrisons need not fear Sainsbury's/Asda merger

Morrisons has enjoyed good growth under CEO David Potts

At first sight you’d expect Bradford-based Morrisons, along with market leader Tesco, to put up a robust fight against the merger. Both number four player Morrisons and Tesco stand to lose from the creation of a new market leader with increased buying power, but there are reasons why Morrisons might not be that concerned.

Retail analyst Natalie Berg at NBK Retail said Sainsbury’s and Asda may be retaining both fascias for now but she believes the Asda brand will disappear from the high street over time. She said there is no room for a retailer like Asda in today’s market - if shoppers want low prices, they head to the discounters and if they want convenience, they head to Amazon.

The outcry from Leeds MPs shows that many fear there will be more job losses at Asda House and analysts believe there could be between 75 and 100 Asda sell-offs if the deal is to pass CMA scrutiny.

Since US retail giant Walmart bought Asda in 1999 it has gradually lost its way. Customers once had huge loyalty to Asda when it could offer them designer brands such as Levi jeans at knock-down prices. Asda used to be the people’s champion, but the discounters have stolen its customers by slashing prices.

In stark contrast, Morrisons has enormous loyalty from its customers who appreciate its low pricing, quality and promotions.

The latest Kantar Worldpanel figures show that Morrisons was the fastest-growing big four supermarket, raking in sales growth of 2.2 per cent over the three months to April 22.

Kantar said Morrisons continues to prove a favourite with shoppers in its northern heartlands, but the grocer is also excelling in the capital, where it is growing at its fastest rate. The grocer attracted 230,000 additional shoppers in the last 12 weeks, beating its big four rivals.

The firm’s growth in London comes from a low base and Londoners have welcomed Morrisons’ online offer.

In contrast, Sainsbury’s and Asda had the slowest sales of the big four chains. Sales at number two ranked Sainsbury’s rose 0.2 per cent, while Leeds-based Asda saw growth of 1.4 per cent.

Sainsbury’s acquisition of Asda’s big stores could create a new outlet for Sainsbury’s Argos stores, but Morrisons could well be interested in some of the smaller stores Sainsbury’s/Asda to forced to sell off.

The research revealed that nearly nine million households visited both Sainsbury’s and Asda over the three month period, which is likely to raise competition concerns.

House broker Shore Capital said Morrisons is expected to reveal its tenth consecutive period of like-for-like sales growth when it reports its first quarter results next Thursday. Analyst Clive Black said that in a period where the whole trade has lost sales and been disrupted by periods of extreme March weather, he expects to see a 1.0 to 1.5 per cent increase in retail like-for-like sales.

He said the UK grocery market remains tough, and the proposed Sainsbury’s/Asda merger could potentially intensify the overall trading environment in time, but Morrisons has “bucket loads” of capability in its vertical integration. Vertical integration refers to Morrisons food production arm. The group makes half of its fresh food, unlike other retailers.

If Asda stores do swap hands or close down, Morrisons has the financial strength to step in and pick up the best sites.

It can take a back seat view of the deal and build on what it does best - offer great products at low prices and stick to the Yorkshire values that Sir Ken Morrison installed in the company.