Safeway battle will be decided at local level - analysis
share of each retailer, is likely to be the best way of assessing
the rival bids for Safeway, claims new research. But it also means
that a carve up of the Safeway business is the most likely outcome.
The prospective rival bids for the Safeway supermarket group from the likes of Tesco, Sainsbury's, Asda and Morrisons are likely to stand or fall on an analysis of each companies' impact on local competition, rather than a blanket assessment of the national market shares of each chain, according to new analysis.
An analysis of the store portfolios of the bidders and the target by Nottingham-based business solutions company Experian shows that the catchment areas of the stores could be the key to winning approval for a bid.
Experian's catchment area research is based on modelled shopper flow data, which provides a more accurate picture of individual stores' customer reach, the company explained. This, it claimed, is a more sophisticated and accurate measure of individual store catchments than the arbitrary 15-minute drive time analysis, which has historically been used (and indeed has been used by the bidders themselves to analyse the potential overlap with Safeway).
Drive time analysis provides a less accurate picture of shopper behaviour, as it takes no consideration of population or competition factors, according to Experian, which has overlaid the entire Safeway store portfolio onto the catchment areas of all Morrisons, Sainsbury, Asda and Tesco stores to reveal considerable areas of catchment overlap.
Morrisons, which is as yet the only company to have made a firm bid and which has consistently stressed that it believes it will not have to sell any Safeway stores to gain approval from the OFT, in fact has 41 stores which overlap with those of Safeway, according to Experian. While this is clearly more than the retailer's own analysis, it is still far fewer than the overlaps with Asda (100), Sainsbury's (208) and Tesco (a whopping 233).
Neither Tesco nor Asda have commented on how many stores they believe would have to be sold in order to acquire Safeway, while Sainsbury's has said it believes the sale of just 90 stores will be enough to satisfy the regulators.
Experian stressed that the number of stores highlighted by its assessment did not necessarily reflect the number of stores which would have to be sold to gain approval from the regulators, but that the Competition Commission - to which the Office of Fair Trading is expected to refer the bids - will have its work cut out to assess the true impact the Safeway sale.
Experian said it believed that the Competition Commission would make its assessment of the impact of any bid not by analysing market share at a national level but rather at the individual store level. If this is the case, then the measure that the Commission uses to define acceptable levels of competition will have major implications on possible store disposals for the key protagonists.
Although Tesco is the market leader nationally, Experian's analysis shows that there are a large number of gaps in its coverage that Safeway stores could fill. If market share was to be analysed at a national level, a bid by Tesco would undoubtedly be blocked. However, on an individual store basis, Tesco - along with other retailers - would be able to present a strong case to the Competition Commission.
Martin Davies, director of property and retail consultancy at Experian, said: "The Safeway acquisition will represent one of the defining moments of the retail culture of the UK and is set to create a seismic shift in supermarket share. Much uncertainty exists about the OFT's desire to maintain four major players in the UK grocery market. At first glance, this policy would seem to play into the hands of the Morrison bid. However, it remains to be seen how stringently this desire will be enforced and how it will therefore impact on any inquiry by the Competition Commission."
Given these complexities, it seems unlikely that any bid for Safeway will be simply waved through by the OFT. Similarly, no bid is likely to be blocked wholesale. One prevailing line of thought is that the Safeway estate may well be carved up amongst the leading players, albeit not equally, on a store by store basis.
Davies added: "It is not surprising, therefore, to see the entrance of a number of prospective bidders from the investment community as stores could be sold on to the leading retailers at a significant premium. This break-up process would also be subject to the dictates of the Competition Commission. However, this would be of less concern to an investment buyer, as long as it is able to make a suitable return on its assets. For the retailers themselves, the victory may ultimately lie in securing the actual sites they want, rather than winning the bidding war outright."
