Big four supermarkets ‘could become big three’

By Nicholas Robinson contact

- Last updated on GMT

The necessity of Morrisons' manufacturing facilities have been questioned again
The necessity of Morrisons' manufacturing facilities have been questioned again

Related tags: Morrisons, Asda

Supermarket price wars could force the merger of one or more of the UK’s big four supermarkets with one of its rivals, analysts claim.

As the big four struggled to grow in the face of stiff competition from the discounters Aldi and Lidl, it was a strong possibility that they would become the big three, claimed Julian Wild, head of the food team at Rollits solicitors.

“For me, JS ​[Sainsbury] and Morrisonsare the most ‘vulnerable’, but, obviously, both are big mouthfuls and both have pros and cons. The UK is a finite market," ​Wild told FoodManufacture.co.uk.

“It looks a strong possibility at some stage, as the big four struggle for growth and are eating each other’s lunch … eventually something has to give."

The growth of the discounters – and even Waitrose – was continually costing the big four their market share, Wild added.

Something had to give

That wouldn’t improve, even as the economy continued to grow, which meant something had to give.

In the firing line:

City analysts believe a tie-up between Morrisons and Sainsbury is most likely, if the big four did ever become the big three.

Morrisons’ manufacturing capabilities would be a further hindrance during the struggle, claimed Wild.

“I still have no idea why Morrisons remains in manufacturing,” ​he said. “If they are retailers, why have a large part of the business and investment focused on manufacturing?”

But Shore Capital director and head of research Clive Black insisted food manufacture was a big strength for Morrisons and questioned suggestions of a merger.

He said: “It’s highly questionable that the big four will become the big three anytime soon.

‘Financial collapse’

“The Competition Commission – the predecessor to the CMA ​[Competition and Markets Authority] stated that it wanted four national players and for this to change would require a high level of approval and/or financial collapse of an incumbent player. These represent large barriers to change.”

However, Morrisons did have a stronger solvency ratio than Tesco and Sainsbury at present, Black said.

Other commentators cited the recent merger of the Netherlands- and Belgium-based supermarkets Ahold and Delhaize as an example of what could happen in the UK.

“It inevitably prompted chatter in the City about the prospect of two of Britain’s big four supermarkets combining,” ​Graham Ruddick wrote in the Telegraph last week (June 25).

A tie-up between Morrisons and Sainsbury was the most-likely outcome if the big four did ever become the big three, Ruddick added.

Morrisons and Sainsbury were unavailable for comment at the time of writing.

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