Sainsbury’s defends Asda link amid rising threat from Tesco

The boss of Sainsbury’s on Wednesday defended its planned merger with rival Asda after Tesco’s deal with France’s Carrefour this week cast a shadow over the British supermarket groups’ tie-up.

“We stand by the deal,” said chief executive Mike Coupe, responding to suggestions that the £14 billion union between Britain’s second and third biggest supermarkets was less attractive with Tesco now planning to cut prices. Sainsbury’s has received £3.5 billion of backing for the deal from banks.

The City said Sainsbury’s should be worried about Tesco’s deal. HSBC’s David McCarthy said: “This alliance, if successful, would be a negative for Sainsbury-Asda. We assume that if Tesco is securing enhanced buying terms now, ahead of Asda’s takeover closing, it means there will be less in the pot when and if Sainsbury completes its takeover.”

The combined businesses’ buying power was a key driver behind the Asda takeover. But Markets.com analyst Neil Wilson said: “You can achieve buying power without merging, which highlights how the Asda and Sainsbury’s deal is about a lot more than they are letting on.”

Some in the City believe Tesco’s French tie-up will strengthen Sainsbury’s case with the competition watchdog, as it underlines the need to get buying scale to compete with rivals.

Coupe added: “The retail world is changing very rapidly and different competitors will respond in different ways. This market is about adapting and changing.”

Sainsbury’s same-store sales growth continued to deteriorate in the first quarter to June 30, despite a 0.2% rise, which compared with a 0.9% increase in the fourth quarter and a 1.1% lift in the three months before.

The company argued that selling cheaper fresh meat, fruit and vegetables since March has dented growth.

Coupe also called for “a level playing field” between online players and bricks and mortar stores and said Sainsbury’s will support the High Street by opening more convenience stores.

His remarks come as today a new review of the High Street, where hundreds of stores are closing amid tough online competition, said business rates should be overhauled. The study, the second such one from retail veteran and former chief of Wickes, Iceland and Booker Bill Grimsey, also called for better collaboration with local leadership to “re-fashion” city centres.