UK chemist Boots will set up mini-shops within large out-of-town Sainsbury’s stores. Given the striking similarities between the two firms, this initiative has fuelled rumors that it could be the first step towards a merger. However, this would take some time to materialize – and in any case, is unlikely to resolve all of their weaknesses. A merger would not solve the groups’ lack of an international strategy or enhance their eCommerce offering.
Setting up Boots shops within Sainsbury’s stores may sound like an innocent enough joint venture, but it could well be the start of something much bigger – quite possibly leading to a full merger between two of Britain’s biggest retailers, both of which have had their fair share of troubles in recent years.
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Both chains have had difficulty expanding internationally. Boots last year shut its Dutch stores just three years after their launch, casting a shadow over its commitment to its operations in Asia. Sainsbury’s has also had trouble abroad, with a disastrous experience in Egypt and may well need to sell its US operations.
They have also both had problems with eCommerce. Boots’ Wellbeing channel, launched last March, is only attracting 12,000 viewers per day; a relaunch is planned for September. Sainsbury’s relaunched its online shopping service last year, but is reluctant to say how many people are using it. Both have been focusing on core markets in the face of cutthroat competition from more aggressive rivals: Sainsbury’s is selling Homebase and Boots is expected to divest Halfords, its car accessories business.
Enthusiasts for a merger argue that Sainsbury’s could greatly strengthen its personal care offering and hopefully attract Tesco shoppers who prefer to buy their groceries, beauty products and prescription medicines under one roof, while Boots could improve its health food offering. Economies could be achieved by merging the two distribution networks and prices could be cut through their greater buying power.
But skeptics have plenty of material to work with too. If the two companies share so many of each other’s weaknesses, would they really be able to resolve them together? A partnership would not include a credible international strategy and provides no quick fixes for their online shopping services. Until their corporate cultures have moved closer together a full merger is unlikely, but it is certainly a possibility in the medium term.
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