Blackfriar: CMA decision could be good news for Asda

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Sainsbury’s £12bn merger with Asda has little chance of success following the CMA’s provisional findings.

This is a much more worrying prospect for Sainsbury’s than it is for Asda.

Asda has rediscovered its mojo under chief executive Roger Burnley, backed by a strong management team despite some recent departures.

Earlier this week Asda reported a 1 per cent increase in like-for-like sales in the fourth quarter of 2018. Yes this was down from 2.0 per cent growth in the previous quarter, but shoppers are reining in their spending amid Brexit uncertainty. This was the Leeds-based grocer’s seventh consecutive quarter of growth.

The latest data from Kantar Worldpanel shows that Tesco was the best performer out of the big four with sales growth of 1.0 per cent in the 12 weeks to January 27, closely followed by Asda with growth of 0.7 per cent and Morrisons with growth of 0.4 per cent. Sainsbury’s saw sales fall by 0.3 per cent.

It is Sainsbury’s that is being left out in the cold.

Mr Burnley said 2018 was another challenging year for the retail market and the year ahead looks no less turbulent. However, this is becoming something of a norm for the highly competitive UK supermarket sector.

He said it is clear that retailers have to be prepared to innovate and challenge their status quo if they want to continue to remain relevant. Asda will have the freedom to do its own thing if this deal falls by the wayside.

Asda’s fourth quarter sales were boosted by higher demand for the grocer’s own-brand products, especially its premium Extra Special range. It must now look at other areas where it can excel.

Asda was always seen as the weaker partner in this merger and many analysts and commentators termed the deal a takeover by Sainsbury’s.

There were rumours about job losses at Asda House and fears that it could close altogether.

Hopes that the merger can be rescued via a store sell-off to Tesco or Morrisons are looking very unlikely. Neither Tesco or Morrisons would be happy to take on such a big estate running into hundreds of stores. The CMA has said it wants the stores to be sold to one buyer, which would scupper any chance of Tesco, Morrisons and others cherry picking the stores they want.

Nor would they want to be the wedding planner that facilitates the marriage of the number two and number three players. It is not in Tesco’s interest to lose its top slot and it is not in Morrisons’ interest to become a minnow battling against a duopoly.

One analyst said that customers should be pleased with the CMA’s findings. He said that you can’t do a full shop at a discounter so we need the strong competition that is provided by four big players.

“I think there should be celebrations in Asda House today,” he said.

“This was always a terrible deal for Yorkshire, but the good news today is we will still have two large head offices in Yorkshire - Asda and Morrisons. This deal was a Sainsbury’s takeover of Asda.”

Analyst Clive Black at Shore Capital believes that Walmart may be dusting off plan B already - an IPO, another retail merger/sale (Amazon keeps being mentioned) or a big private equity deal.

None of these options look likely in the current febrile political situation, but when the Brexit dust settles, Blackfriar sincerely hopes that Asda could become a Yorkshire-based PLC once again.

With no US masters sucking it for profit and no London-based partner taking the lead, it would be great to see Asda restored to its former glories, doing its best for Asda colleagues, customers, suppliers and shareholders.