Sainsbury’s must go back to basics after failed merger

By James Ridler contact

- Last updated on GMT

The failed Sainsbury's/Asda merger has cost the retailer £46m
The failed Sainsbury's/Asda merger has cost the retailer £46m
Sainsbury’s can no longer hide behind the inflated results that its failed merger with Asda would have brought and must now go back to basics to secure it’s position in the market, warned Shore Capital’s head of research Clive Black.

His comments followed the Competition and Markets Authority’s (CMA’s) decision to block the merger, which has cost the retailer £46m.

Sainsbury’s, the second-largest supermarket by market share (15.4%), said the costs were related to deal preparation, integration planning and transaction financing.

Black said the failed merger had landed a body blow on the retailer’s investment thesis and its senior management team.

‘Focus on the day job’

“The group must now eradicate the excitement that the proposed merger was expected to bring, noting early doors comments of great confidence of regulatory clearance, and focus down on the day job,”​ said Black.

“That day job also does not have the smoke screen on underlying performance that a merger combination would have brought – something that would, no doubt, have been particularly useful to the Sainsbury’s team – which was going to dominate the combined group, particularly given its ‘now found’ independence.”

Will Broome, chief executive and founder of retail technology provider Ubamarket, said eyes were now on Sainsbury’s to see what moves would be made to boost its sales as it recovers from the CMA ruling.

New tech

The retailer was looking towards implementing new technology in stores in a bid to keep costs down. However, it is unclear whether driving down costs – while still ensuring food quality, choice and a competitive market – would negatively impact suppliers.

Sainsbury’s reported pre-tax profits of £239m, a 41.6% drop from the £409m reported in the previous financial year. Sales were relatively flat, up 2.1% to £32.4bn, with grocery sales remaining the major driver – up 0.6% to £19.4bn.

Despite an overall drop in profit for the year, chief executive Mike Coupe remained confident. Commenting on the results, he said: “I am pleased to report that we have increased profits ​[before underlying costs], reduced net debt and increased the dividend.

“This is testament to the hard work of colleagues across the business and I would like to thank them for their commitment during this year of change.”

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