Proposed Sainsbury’s and Asda Merger

Fundamental Customers’ shopping habits Discounters are now mainstream grocery and expectations of value competitors. The average basket size at a change to grocery traditional supermarket contains 13 items sector in the last The way people shop has changed versus 16 at a discounter. dramatically as a result of both the ten years changing retail landscape and changing lifestyles. Customers now expect ever The UK grocery market is more ‘Customers now lower prices and better quality, range, competitive than ever before. Shoppers convenience and service. expect ever lower have more choice and they want great quality and service at the lowest People now shop more often and in prices and better possible price. more places, with new technologies and channels opening up an increasing number quality, range, That’s the basis for the proposed of options. The “main weekly shop” is a combination of Sainsbury’s and Asda. convenience thing of the past for most families – recent To lower costs and offer customers figures show that customers now shop an and service’ better prices, quality, range, service average of 3.3 times a week. and convenience. New ways of shopping explain why We estimate the UK market The benefits of this combination to the “big box” supermarket stores are under UK are clear. Together, we will create a for retail food and grocery pressure. They are increasingly competing stronger UK business which will help lower to be with more convenient, medium-sized and the cost of living for UK customers and smaller shops which can offer attractive support UK suppliers. prices, quality and flexibility. £140bn

Surge in shopping choices The competitive landscape has transformed in the past decade. The concept of the “Big 4” grocers is now outdated.

There are now many major multiple chains: Convenience options include: New grocery options, such as food delivery (Just Eat, Deliveroo, UberEats) and meal kits (HelloFresh, Gousto) are all competing for the same customers. Ocado and Amazon are expanding too.

Bargain stores have expanded too: Protecting and Market disrupted by the growth of new entrants nurturing our suppliers Our supplier base is highly concentrated, Aldi and Lidl have had the biggest and a small number of large companies impact on the sector in the last decade account for the vast majority of what we and have redefined ‘value’, particularly buy. The basis for the proposed merger in fresh food and own-brand products. >2,000 is to lower prices for customers across They have improved their customer store Aldi and Lidl stores projected Sainsbury’s and Asda and to improve the experience and expanded rapidly, forcing to be open by 2022 customer offer of both brands. This will traditional retailers to cut their cost bases be possible, in part, by harmonising our in response. buying terms with a small set of large – The combined market share of Aldi and Lidl often multinational – companies. has grown by more than two and a half This is not a zero sum game. In this highly times in the last seven years, from 4.3% competitive market, we believe that our in 2011 to 10.9% in 2018. The proportion of focus on reducing prices will offer a unique spend at discounters by customers doing opportunity for suppliers to make their their “main shop” reached nearly 50% in supply chains more efficient, serve a wider 2018, more than the 42% for traditional customer base and ultimately grow their retailers. They are now significant grocery businesses as we grow ours. players, with a combined market share that Aldi and Lidl have a is larger than Morrisons. combined volume share of Our small and medium-sized suppliers are critical to our businesses. Sourcing from The rise of the discounters, growth of small suppliers and farmers will remain at convenience stores, online channels, 20.5% 16.6% the heart of our customer offer. and home delivery services have all fresh food packaged food contributed to a new retail landscape. Sainsbury’s and Asda are already bound by the Groceries Supply Code of Practice (GSCOP) and we will continue to ensure suppliers are treated fairly. We want to ‘By keeping both Merger rationale further strengthen our relationships with brands distinctive The scale and pace of change has had our suppliers. a dramatic impact on supermarkets, and competitive, which have responded by reducing costs and improving their customer offering customers will get quickly. But, to be competitive in the long term, we must do more. Standing still in even more of what this challenging retail environment is not ‘A unique opportunity they love and value an option. for smaller suppliers to from both’ The merger will allow us to lower prices grow their businesses and to compete more effectively against larger, multinational competitors. We have as we grow ours’ committed to lowering prices of everyday items by around 10% and to investing in greater quality, range, service and The review by the convenience to deliver a more compelling customer proposition overall. Competition and

At the same time, by keeping both brands Markets Authority distinctive and competitive, customers will The Competition and Markets Authority get even more of what they love and value (CMA) is undertaking an objective, from both. For example, the merger will independent and evidence-based enable us to offer Argos to Asda customers. review and we will continue to engage constructively with it. The proposed merger is pro-competitive for the UK grocery market. We expect it to We will not prejudge the outcome of the stimulate greater competition from our rivals, process but we are confident that the leading to a dynamic and market-wide proposed combination of Sainsbury’s strengthening of competition, to the firm and Asda creates clear benefits for UK benefit of customers. customers and for the wider economy.