Is Amazon set to pounce after the Sainsbury’s/Asda merger failure?

By Oliver Morrison contact

- Last updated on GMT

'To truly make a dent in the UK grocery sector, Amazon needs stores'
'To truly make a dent in the UK grocery sector, Amazon needs stores'

Related tags: Sainsbury's, Amazon, Asda

Amazon may “swoop into the UK grocery market and take advantage” in the wake of the failed merger between Sainsbury's and Asda, which was blocked by the UK’s competition watchdog.

So warned Sky News’ economics editor Ed Conway, who argued that Britain has “archaic antitrust and competition rules which tend to favour rootless tech firms over traditional companies”.

Retail analysts have long speculated on whether the e-commerce giant will make a move into British bricks and mortar after it first disrupted the UK grocery sector by launching Amazon Fresh in 2016. It also entered the grocery market in the US in 2017 when it acquired the organic food chain Whole Foods Market (which has a market share of 0.1% in the UK). The Sainsbury’s/Asda merger would have protected against any advance by Amazon, as they claimed the deal would allow them to reduce costs. As it turned out, the Competition and Markets Authority (CMA) took the opposing view, and said the deal would lead to increased prices for shoppers.

Therefore, the speculation is again mounting. Nick Carroll, Associate Director of Retail at Mintel, explained that Amazon has an end goal of becoming the biggest retailer in the UK and has two major categories earmarked for disruption – fashion and grocery. A move into the UK’s grocery retail sector “would send shockwaves across the sector”, ​he said, but to truly make a dent Amazon “needs stores”​ and, given its “tentative​” and “scatter-gun​” approach to the UK so far it may look to Germany instead.

“Amazon Go seems to be arriving soon – if the rumours prove to be correct, but a single tech demo-come-flagship store is not going to scare Tesco,”​ he told FoodNavigator.

“In reality, the most logical conclusion is that Amazon will acquire an existing chain, and rumours have swirled for years now, be it Morrisons (existing relationship), Booths (existing relationship and looking for a buyer), or Waitrose (would fit into its more premium approach to date).

”These have all been denied, or not commented on, but if Amazon is serious about UK grocery retail, and it may be that it looks to Germany or elsewhere on the continent instead, then it will need to get the cheque book out.”

Other analysts are unconvinced that Amazon will make any move into the UK food space. “People are still waiting to see what Amazon’s next move in the UK market will be. With the Whole Foods business, and the recent partnership with Casino in Europe, food retail is an area of interest for them,” ​said Richard Curry, partner in the retail team at property and planning consultancy Rapleys.

Amazon will always be speculated about, but we do not believe that taking on a major physical food presence in the UK fits with its strategy, despite the Whole Foods deal in the US, which was a distressed (i.e. cheap) business, more focussed on affluent customers​,” said Patrick O’Brien, UK Retail Research Director at GlobalData.

Both analysts added the merger failure could have ramifications for ASDA’s ownership.

“We do not believe Walmart will want to keep ASDA as it is now, and may look to sell ASDA to other suitors, but it would look unlikely that other major players in the UK would consider it, given the strictness the CMA has displayed. It opens the possibility of private equity or floating the business, or a foreign retailer entering the market,”​ said O’Brien.

Curry added: “It would be ironic indeed were Amazon to end up buying some or all of the Asda portfolio given Walmart’s exit from the UK to focus on the US is almost entirely driven by a desire to defend against Amazon on home soil.”

Related topics: Business

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