Asda Sainsbury's merger talks 'sign of changing retail world'

By Emma Simpson
Business correspondent, BBC News

image copyrightReuters

Could the big four become the big three? It's a question many had been asking given how the grocery landscape has been changing.

All the main supermarket chains have been looking to find new sources of growth because there's not much of it around their own aisles.

Not least because discounters like Aldi and Lidl have been hugely disruptive, stealing customers and eating into their market share.

And then looming on the horizon is the mighty Amazon and its desire for a bigger slice of the grocery pie. It's already squeezing them in non food.

Tesco shook the industry by buying Booker, Britain's biggest wholesaler, to tap into the growing "out of home" food market, where people are eating out or buying prepared food to eat at home or on the go.

It would also give Tesco even greater scale and buying power with suppliers.

Morrisons has done a tie-up with Amazon to supply the online retailer with hundreds of products. It has also done a deal to supply McColls, the convenience store chain.

And then, of course, Sainsbury's bought Argos, giving it a £6bn general merchandise business at a stroke.

That left Asda. Owned by Walmart of the US, it had been the poorest performer of the big four. The industry has been wondering what its big strategic move might be. Now we know.

Combining the two businesses will greatly increase their bargaining clout, providing better economies of scale, although the two brands will remain.

If this merger goes through, it will be the biggest shake up in UK grocery retailing since Morrisons took over Safeway in 2004.

But will it pass the competition authorities?

Asda's former boss, Andy Clarke, told me last year that the CMA's ruling on the Tesco/Booker deal meant it was "open season" for further deals in the sector.

But this planned merger will get plenty of scrutiny, for sure.

This is perhaps the starkest sign yet of how fast the retail world is changing.

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