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Sainsbury's - Asda deal set to shake up UK grocery retail

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In a mature market such as the UK grocery retailing, which is worth GBP170 billion, the approval of the merger between Asda and Sainsbury’s will lead to a major shake-up of the competition. Product innovation, convenience and price are the major drivers shaping this market. The merger will fundamentally change the potential and the ways in which players compete along these different axes.

The increased buying power of Asda-Sainsbury’s will ensure cost savings on the supply chain side, which will be passed on to consumers. The deal will also bring to more product innovation within the group. Both Asda and Sainsbury’s are likely to continue to invest in new products development for their private label ranges, which has historically been a focus area of both players’ strategy. Consumers will likely have a wider and better choice that perfectly tackles their evolving needs. 

In terms of customer base, Asda and Sainsbury’s enjoy a privileged position, being characterised by a high degree of consumer loyalty. Given that the two brands will keep on trading under different fascia, they will be able to keep both price-sensitive Asda consumers and quality-hunting Sainsbury’s clientele. Its competitors will lose significant share after the merger, with Tesco being the biggest loser. The new grocery giant will achieve a market share higher than 25%, overcoming the former market leader Tesco. Smaller players with a significantly lower amount of funds available for investment will find it difficult to replicate the innovation and price-cutting efforts of the new-born grocery giant.

To cope with these threats, it is likely that grocery players will seek strategic relationships with suppliers or other competitors. Securing exclusive relationships that bring along supply cost reductions will be vital to ensure the future viability of these businesses. The grocery retailing market is likely to change drastically, being subject to seismic shifts in competition and reaching a whole new state in the next few years.

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