UK supermarket group Morrisons, normally as commendably steadfast as its northern roots, has launched a bid for the Safeway chain. The move is a canny one that would launch Morrisons into the big time. However, it is likely to spark a bidding war that could herald major changes for the industry’s leading players, with tougher competition meaning that consumers will be the real winners.
The UK’s fifth largest supermarket chain, Morrisons, has made a £2.6bn bid for the Safeway chain. A successful deal would catapult Morrisons into third place behind Tesco and Asda, thereby relegating J Sainsbury to fourth place.
Morrisons, run by Sir Ken Morrison, usually employs a strategy of steady organic growth. It has not made a large takeover since 1978, when it bought eight supermarkets. In contrast, Sir Peter Davis, Sainsbury’s high profile chief executive, has made a string of mergers and acquisitions.
The acquisition of Safeway would be a sound strategy for Morrisons. The retailer operates mostly in the north of England, whereas Safeway is twice as large and is most successful in Scotland and the Southwest.
But the prospect of a sudden slide into fourth place is understandably unacceptable to Sainsbury, which was once the country’s leading supermarket. It is attempting to scupper the deal with Morrison’s by initiating talks aimed at launching its own £3bn bid for Safeway. A merger would also boost Sainsbury’s market share in the north of England, Scotland and the Midlands.
Yet any bid by Sainsbury is likely to prompt a similar move from Asda and its deep-pocketed US parent company, Wal-Mart, the world’s largest retailer, allowing it to realise its aim to be the UK’s largest retailer.
In fact, any merger is certain to attract a lot of attention from the regulatory authorities, especially in the case of Wal-Mart. Whereas both Wal-Mart and Sainsbury could offer Safeway shareholders a better price, they may well be rejected to avoid regulatory complications. Sainsbury has estimated that in order to satisfy local competition issues, it would have to sell over 90 of Safeway’s 479 sites.
Whichever of Safeway’s suitors emerges victorious, the map of UK retailing looks set to be redrawn. As long as competition is protected, the ultimate winner will be the consumer.
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