Sainsbury’s Mr Coupe not smiling now

The CMA’s decision to block the Sainsbury’s-ASDA merger puts the heat on Sainsbury’s CEO Mike Coupe. Whatever the rights or wrongs of the CMA’s decision, industry commentators say he appears to have wasted a year chasing an impossible dream while its competitors took full advantage of its distraction. Its results over the last year have been poor, with store standards falling noticeably, and it must now refocus on retail basics rather than chase another big acquisition.

“One of the key mistakes Coupe made,” says Patrick O’Brien, UK Retail Research Director at GlobalData, “was failing to offer any assurances on price cuts until the CMA’s devastating provisional findings in February: it built the rationale for the merger on the rather vague notion that it would reduce prices by 10% by putting pressure on major suppliers, though it didn’t make it clear how many products this would include. It only made some assurances of audited price investment later, but this might have had more sway if it had offered them at the start.

“The confidence Coupe placed in getting the deal past the CMA in light of its previous – generous – decision to allow Tesco to buy Booker looks like a bad misjudgement now. Mike Coupe may feel hard done by, but the CMA made clear that the Tesco-Booker deal was passed because it considered the acquisition to be a vertical one, by a retailer of a wholesaler, so viewed that the combination did not significantly damage the competitiveness of either market. The rights and wrongs of that decision are debateable but it looks difficult for Coupe to argue that the CMA’s decision then is in direct contradiction of its decision regarding ASDA/Sainsbury’s now.

“ASDA’s performance does not give as much cause for concern as Sainsbury’s, which puts more pressure on Coupe. Why has ASDA been able to manage the distraction of the merger so much better? We do not believe Walmart will want to keep ASDA as it is now, and may look to sell ASDA to other suitors, but it would look unlikely that other major players in the UK would consider it, given the strictness the CMA has displayed. It opens the possibility of private equity or floating the business, or a foreign retailer entering the market. Amazon will always be speculated about, but we do not believe that taking on a major physical food presence in the UK fits with its strategy, despite the Whole Foods deal in the US, which was a distressed business, more focussed on affluent customers.”

Will Broome, CEO & Founder of Ubamarket reckons blocking the merger can only be a positive move:

“The Competition & Markets Authority has made the decision to stop the merger, after uncovering that it would lead to increased pricing across stores, online and petrol stations. The CMA’s move is protecting those who shop in Sainsbury’s and Asda stores each week. It is imperative that the shopping experience and market is protected for the benefit of British consumers.

“Given the current state of bricks and mortar stores, blocking the Sainsbury’s and Asda merger can only be a positive move for the market. If this was to happen then this would drive prices higher and penalise consumers in doing so. The implementation of retail tech would enable supermarket retailers to enrich the shopping experience for consumers whilst broadening their in-store offering. It would be beneficial for supermarkets to consider implementing retail tech into their offering in bricks and mortar stores. This would level the playing field between in store and online sectors whilst driving prices down for consumers in the process. Retailers have a duty to find a balance in their responsibilities to their employees and consumers in ensuring that food quality, choice and a competitive market is available.”

It might comfort Mike Coupe – or it might not – to hear that a survey by professional training provider Learning People reveals 34% of retail workers in the UK are waiting to be made redundant before switching careers. The trend is mirrored nationally, with over a third (34%) of workers at the sharp end of changing labour demands waiting to be made redundant before switching careers.

This figure rises to 62% among those aged under 35, with younger employees also reporting more pay freezes, shrinking teams and zero-hour contracts. The study interviewed 1,000 employees in job functions and sectors experiencing declining demand, namely administrative and secretarial roles, agricultural employees, machine operatives and skilled trades in manufacturing, land transport workers and sales and customer service staff in the retail sector.

Reflecting on the past five years, more than three in four retail workers (76%) complain of shrinking teams and increasing workloads, 55% have experienced pay freezes and almost half (45%) say redundancies have become commonplace.

Across the sectors, young employees present a bleaker picture of working life than older colleagues. 64% of employees under 35 report pay freezes, compared to just over half (57%) of older workers. Similarly, 65% of younger employees have seen an increase in zero-hour contracts in contrast to just 39% of older workers, and 58% say redundancies have become a regular occurrence, compared with 40% of over 35s. While almost one in 10 (9%) employees in declining labour markets have either already begun retraining or plan to start soon, around a quarter (23%) want to switch careers but don’t know what else to do.