Anthony Hilton: The Sainsbury-Asda slogan is competition is for losers

Share: Sainsbury’s and Asda have 31.4% market share according to Kantar Worldpanel

AFP/Getty Images

30 August 2018

Adam Smith, the father of modern economics, once said businessmen always wanted to create monopolies and these invariably meant the consumers lost out.

He was writing in the 18th century but the 200-plus years since have proved how right he was.

The tech giants are a case in point. In September 2016 Tim Cook, chief executive of Apple, said the monopoly legislation, data protection and intrusive tax legislation were “political crap”.

Peter Thiel, the founder of Paypal and Clarium Capital, is even more stark. “Americans mythologise competition and credit it with saving us from socialist bread lines” but as far as he was concerned “capitalism and competition are opposites”.

“Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear — competition is for losers.” That was in 2014.

Now take Sainsbury’s bid for Asda. They are the number two and number three supermarkets in the UK, Tesco being number one and Morrisons number four.

The idea is to put them together, and the executives say this will create huge value for customers because the new business will be much more efficient and will screw down suppliers by extracting even lower prices. This will benefit shoppers because some of the gains of these lower prices will be passed on.

The Competition and Markets Authority has been deputed to look at the merger and decide what, if any, impediments should be put in its way.

The CMA normally works in phases, each more stringent than the one before, but Sainsbury’s and Asda asked for it to go to a full investigation straight away, because they think it is likely, on balance, to be quicker.

The CMA appears to agree, opening a “phase one” investigation and saying it expects to move faster to a more in-depth inquiry.

The real issue anyway is competition: the CMA is normally expected not to clear any merger where the combined group has a 25% market share.

Sainsbury’s and Asda have 31.4% market share according to Kantar Worldpanel, a data collection agency, basing its figures on the big supermarkets, plus Waitrose, Lidl and Aldi. So that should be the end of the matter — the deal should be blocked.

But executives do not give up easily, particularly when they see a monopoly coming on. Sainsbury’s and Asda have constructed an alternative universe. Instead of looking only at the shares of the supermarkets, they have also included fringe suppliers like Boots, Marks & Spencer, Wilko and others. This gets the food share down to 26%. Add another heave to take in the corner shops and it gets you down below 25%.

Now the fact is that these retailers, Sainsbury’s, Asda, Morrisons and Tesco, are normally only too keen on having a high market share. Whenever they have profit announcements, they trumpet their scores but it is only the big supermarkets that concern them.

They never bother about corner shops. Internally whether their organisation is doing well or missing out relative to the big supermarkets in the sourcing of supply again concerns them. Once more they never bother about corner shops.

In fact this is a defensive merger. The discount stores of Aldi and Lidl have taken a bite out of the established supermarkets. Online retail takes another bite because people don’t go to the stores so much. And Amazon seems to be stirring to supply food as well as everything else in what could be the biggest hit of all.

Certainly this is why America’s Walmart, Asda’s parent, wants out. It thinks Amazon is the competitor to fear, and it wants to husband resources in the US for that fight.

Supermarkets in Britain have had their run of growth and are facing much tougher times. Walmart has lost interest in Asda — it has for several years — and it wants to create a merger to reduce its share of the combined entity and then, when the time comes, to sell out completely. A minority holding in a foreign country makes no sense.

Sainsbury’s is left holding the baby although Mike Coupe, the chief executive, didn’t appear to see it like that, caught singing “we’re in the money” when the merger was announced.

That hardly seems likely, given the chances of his screwing up the merger, but it is up to the CMA to prove him wrong.

Unfortunately it has had a patchy record, but we must at least hope.

Anthony Hilton: The Sainsbury-Asda slogan is competition is for losers

Read More