LONDON: This week’s unexpected announcement of a merger between two of the UK’s leading supermarket chains, Sainsbury’s and Asda, poses challenges both internally, as the pair promise a “dual brand strategy”, and externally, as FMCG brands face a squeeze, while agencies may also suffer in the fallout.
Sainsbury’s, in addition to selling groceries, also has its Tu clothing range, as well as owning the Argos catalogue chain and the Habitat homewares brand. Asda, a Walmart subsidiary, sells a clothing range under the George name.
Having so many brands within an enlarged Sainsbury’s Group may lead to questions over how they retain their distinctiveness, Marketing Week noted.
Together the pair would control around 31% of the UK grocery market, putting the combined group ahead of Tesco, currently the market leader with 28%.
“We plan to operate a dual-brand strategy in grocery, with the scale to invest in the areas that matter most to customers: price, quality & more flexible ways to shop,” Sainsbury’s announced in a Tweet.
Asda and Sainsbury’s will aim to “sharpen their distinctive customer propositions and attract new customers”, a notion which offers “a real opportunity from a brand and comms perspective”, according to Catherine Shuttleworth, retail analyst and chief executive at shopper agency Savvy.
“This merger could allow the brands to focus on what they are best at, reverting to their true DNA,” she told The Drum.Their combined buying power will also put pressure on suppliers as the new group looks to cut costs and prices for shoppers.
“At some point that will mean strategic change and operational change for brand owners,” noted Rob Sellers, managing director at Grey Shopper.
Major FMCG advertisers like Unilever and Procter & Gamble have already reduced agency numbers and brought more work in-house, as they seek efficiencies and cost savings, a trend that may be accelerated as margins are further squeezed.
Meanwhile, Walmart, which will own 42% of the newly combined business in return for selling Asda but hold just under 30% of the voting rights, has plans for Argos.
“We are going to be thoughtful and look at different ways of operating internationally. We no longer always need to be in control,” said Judith McKenna, president and chief executive of Walmart International.
“We are particularly interested in the Argos group and the benefit that could bring around the world,” she added. “We could bring Argos into Walmart stores in other countries in time.”
Sourced from Marketing Week, The Drum, Financial Times; additional content by WARC staff