Any move from Asda will be an important catalyst in the race to land Somerfield. The Wal-Mart owned group could well see its acquisition target as an important route into the ever-expanding convenience and non-food sectors as it develops a strategy to counteract Tesco's growing dominance of the UK retail landscape.

Somerfield has been the subject of takeover speculation ever since Baugur, the Icelandic group, submitted a £1bn (US$1.9bn) proposal earlier this year. Baugur has since joined forces with a consortium including Barclays Capital to bid again, while a rival group made up of London & Regional and Japanese finance house Nomura is also a touted suitor.

Speculation that Asda might be interested in joining forces with either of the bidders was compounded with the reported appointment of investment house Lazard to explore a possible offer for Britain's fifth biggest retailer. Asda is apparently considering launching an outright bid or striking a deal with one of two consortia currently vying for Somerfield. Either way, any move will intensify the pressure on the bidding parties to formalize their offers.

There are key strategic reasons why Somerfield would be deemed a worthy acquisition target. With the hypermarket model favoured by Wal-Mart, Asda's US owner, continually hampered by planning restrictions, the acquisition of Somerfield would facilitate a new focus on the booming convenience sector.

A higher prevalence of on-the-go lifestyles, increased commuting and travel time, a growing number of single person households and a greater preference towards flexible schedules are all major drivers to greater convenience store penetration among consumers. More importantly, the UK has the largest sales of food and drink sales through convenience stores in Europe, with a value of $24.3bn in 2003 and strong growth prospects for the next five years.

It is also thought that the group wants to use some of the 1,250 Somerfield store sites to expand its non-food chain, which currently trades from just two branches. Market leader Tesco has been particularly successful in reaping the rewards of a growing non-food sector presence and has plans to open new stores that will sell non-food products only. Asda will therefore be particularly keen to ensure to that it can keep pace with the might of Tesco as both look to diversify away from core grocery retail. Somerfield could well be an important facilitator in this.

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