Walmart Sells U.K. Subsidiary, Putting One-Third of the British Grocery Market Under One Roof

Photo from Gillie Rhodes on Flickr

Last week, Walmart announced plans to sell its U.K. subsidiary Asda to rival British grocery chain Sainsbury’s. The proposed deal would create the largest grocery store chain in British history, with more than 31 percent of the market in the hands of one company. It would put even more pressure on farmers and food suppliers, and threaten 330,000 employees with job losses.

“This merger risks squeezing what little competition there is in the groceries market even further and moves alarmingly close to the creation of a supermarket monopoly,” said Labour Party member and Shadow Secretary for Business, Rebecca Long Bailey, in a public statement last week.

The deal also raises the question of what is next for American markets, which have seen increased grocery consolidation – largely driven by Walmart – and the closure of regional grocery stores in recent years. Since the early 1980s, the retail sectors of the U.K. and the U.S. have followed largely the same trajectory, towards greater and greater concentration.

The U.K. grocery market is already highly concentrated. Dominant grocer Tesco controls 27.6 percent of the market, and Sainsbury’s and Asda command 15.9 percent and 15.5 percent, respectively. This new company, together with Tesco, would bring 59 percent of the market under the roofs of two chains. By comparison, America’s three leading grocers command 41.4 percent of the market.

Many retail experts see the merger as a defensive move. They say it reflects new competition from German discount chains, Aldi and Lidl, as well as the looming threat posed by Amazon. Sainsbury’s went into direct competition with Amazon in 2016 when it acquired Britain’s largest home goods catalog retailer, Argos. Sainsbury’s has been installing Argos concessions in their stores, where customers can purchase a wide array of home goods with same day delivery.

“I think Sainsbury’s and Asda are scared stiff of when, not if, Amazon comes into the U.K. markets,” said Steve Parfett, chairman of the cash and carry wholesaler, AG Parfett & Sons, “I think they see that as the big strategic challenge.”

Other business experts see the deal more simply. “In a flat, low-margin industry, scale becomes paramount,” explains Tim Galpin, a Senior Lecturer of Strategy and Innovation at the University of Oxford Saïd Business School. “This deal is a manifestation of that.”

A wide variety of groups have concerns about the merger. Craig Beaumont of the U.K. Federation of Small Businesses expects that consolidation will beget further consolidation. This merger, he says, means “we will actually see an acceleration of consolidation rather than this being the one big change.”

Workers also worry the deal will result in layoffs. “We know when there’s been mergers and acquisitions there’s been jobs losses,” said Gary Carter, National Officer at GMB, the union that represents Asda workers. Carter says Asda put its employees through a lot of internal restructuring in recent years. “After all that hard work, this was a bit of a kick in the teeth for them in many respects,” he says.

Galpin believes the merger will result in job losses long term. “They will have overlapping stores literally right across the parking area from each other,” he noted.  The merged corporation “may not close stores or lay people off in the next several months, but the merger will allow [store closures] down the road.”

Farmers and food suppliers say the deal will only further concentrate buyer power in an already highly consolidated market. In a public comment, the President of the National Farmers Union, Minette Batters, urged the Competition and Markets Authority – the U.K.’s top antitrust enforcer – to carefully consider how the concentration of retail power could put pressure on farmers.

Parfett said Sainsbury’s-Asda will leverage its newfound market power to squeeze suppliers for lower prices. “Going from four dominate players to two makes it harder and harder for suppliers to not accept their demands, whether they are justified or not,” Parfett said.

It could take the CMA as long as 18 months to review the proposed merger. While the deal is far from guaranteed, experts note that the recent approval of Tesco’s merger with wholesaler, Booker, may pave the way for the Asda and Sainsbury’s merger to go through.

Some suppliers will “have nowhere else to go,” Beaumont says. “If you’re a small supplier and you are supplying one of these two supermarkets, it’s likely to be your biggest customer and possibly your only customer.”

Update, April 29th 2019 – The UK Competition and Markets Authority blocked the deal on April 25th, 2019, arguing an ASDA-Sainsbury merger would “push up prices and reduce the choice and quality of products on sale in stores,” reports The Guardian.

What We're Reading

• Yesterday, Walmart agreed to pay $16 billion for a 77% stake in Flipkart, India’s largest e-commerce company. The Wall Street Journal reports that Google’s parent company, Alphabet Inc., also plans to invest in Flipkart in an attempt to prevent Amazon from acquiring the company. Purchasing Flipkart will be Walmart’s largest deal since it purchased Asda back in 1999.

• The House Committee on Agriculture approved a bill that would establish a national database amassing highly sensitive information on the 40 million some recipients of the Supplemental Nutrition Assistance Program (or SNAP), including Social Security numbers, asset information, birthdates, and more. A piece by Slate outlines the far-reaching potential for abuse, fraud, and breaches of privacy in creating this “de facto National Data Center of the Poor.” Proponents claim the database will prevent recipients from receiving SNAP benefits in two states, even though “99.8% of enrollees receive food aid in only one state,” and some of the 0.2% “double-dippers” represent administrative lags in closing accounts for recipients who move frequently, like migrant farm workers.

• Tech Crunch reports that the venture investment arm of Tyson Foods continues to delve into the world of plant-based and “clean” cultured-meats, with a recent investment in the Israeli startup, Future Meat Technologies. This follows similar investments in companies like Beyond Meat and Memphis Meats in a race to corner the future of meat production. But the corporation isn’t straying too far from its roots, as yesterday Bloomberg announced that Tyson may acquire Keystone Foods LLC, the U.S. supplier of chicken nuggets to McDonald’s, a product Tyson created for McDonald’s back in 1979.