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Sainsbury's and Asda: Will the big four soon become three? 

Britain’s grocery sector has been embroiled in an enduring price war, as the rise of online shopping and German discounters revolutionise Britain’s retail landscape.
The "big four" grocer’s stranglehold on the market has been waning. Aldi and Lidl’s bargain-focused, no-frills, approach has resonated with many customers. Both Asda and Sainsbury’s have seen their market share suffer as a result.
US tech giant Amazon’s incursion into the UK grocery has also presented a looming threat. Some believe Amazon’s ?10.7bn takeover of  Whole Foods, supply deals with Morrison’s, and its online grocery offering through Amazon Prime and Pantry, are a precursor to a more aggressive assault on the industry.
A tie-up between Sainsbury’s and Asda, valued at ?15bn including debt, would create a grocery giant with the financial firepower and scale to mount a fight on both fronts.
Buying as a bigger group could drive down the supplier costs, freeing up money to invest in cutting prices in order to compete with the German discounters.
Sainsbury's and Asda: Will the big four soon become three? 

Amazon's deal for Whole Foods raised prospect of a more aggressive push into UK grocery from the American tech giant

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A Whole Foods bag
Bringing together Asda’s dominance in the North, with Sainsbury’s strength in the south, would also forge a business with a huge footprint and products priced at either end of the market.
Sainsbury’s ?1.4bn takeover of Argos from Home Retail Group has helped strengthen the supermarket’s online presence, while bolstering in-store sales where Argos concessions have been introduced.
The combined business could choose to expand this roll-out into Asda stores, creating a stronger click and collect offer and providing a deeper range of products across electricals, homeware, toys, food and clothes.
Meanwhile, analysts have also suggested that Sainsbury’s and Asda have been emboldened to pursue the deal after seeing the competition watchdog agree to Tesco’s ?3.7bn tie-up of wholesaler Booker.
If the merger goes ahead, what will the new company look like?
Sainsbury's and Asda: Will the big four soon become three? 

Sainsbury's chief executive Mike Coupe
The ?15bn mega-merger would not lead to either brand disappearing, The Daily Telegraph understands. Both Sainsbury’s and Asda would continue to have a presence in the UK grocery market.
It is understood that Sainsbury’s chief executive Mike Coupe would take charge of the combined business, with Asda CEO Roger Burnley continuing to manage the Asda operation.
While some have questioned whether the tie-up could lead to Walmart leaving the UK market, it is understood the US retail giant would not race for the exit door, but continue to hold a large stake in the new firm.
How will the competition watchdog react?
Sainsbury's and Asda: Will the big four soon become three? 

Liberal Democrat leader Sir Vince Cable has urged the competition watchdog to investigate the ?15bn mega deal
The UK’s competition watchdog is under fierce pressure to launch an investigation into the tie-up when the deal is announced on Monday.
Liberal Democrat leader Sir Vince Cable, the former business secretary, and the shadow business secretary Rebecca Long-Bailey have urged the Competition and Markets Authority (CMA) to launch a probe as soon as possible.
Sir Vince said: “The CMA has to be tougher. They’ve been a bit feeble in some areas, specifically when it comes to the banks.”
The CMA may seek to force the two supermarkets to close or offload stores in order to allow the deal to go-ahead.
Chief among the CMA’s concerns may be towns where a monopoly could arise as a result of the deal. A town where Sainsbury’s and Asda are the only supermarkets, or co-exist with only one other player, could raise a red flag for the CMA.
Price could also be a key worry for the watchdog. Any suggestion that the deal will cause prices to rise for customers will not sit pretty with the watchdog.
However, it is understood that part of the thinking behind the mega-merger is to allow the combined business to be more competitive by offering cheaper products to customers.
Will the deal face opposition?
Sainsbury's and Asda: Will the big four soon become three? 

Supermarket suppliers could be force to offer lower prices following the Sainsbury's-Asda deal
Some leading British supermarkets have already started gearing up to the oppose the deal.
A source at one leading supermarket questioned whether Sainsbury’s and Asda could still offer a genuine point of difference for customers if they are sourcing products from the same suppliers.
Given that such a deal would create the biggest player in the UK grocery markets, it is likely that rivals will seek to oppose the merger if the CMA investigates.
Meanwhile, the prospect of stores closures and thousands of job losses has also drummed up anxiety among union bosses.
Unite the union’s acting national officer Joe Clarke said it would seek assurances from Sainsbury’s in the coming weeks “as a matter of urgency” for its 20,000 members.
He said: “Staff are already facing uncertainty through restructuring and changes to contracts at the supermarket retailer.
“It is vital that Sainsbury’s does not compound that uncertainty and ignore its loyal workforce which is its most important asset in any merger talks.
What will it mean for suppliers?
Sainsbury's and Asda: Will the big four soon become three? 

German discounters Aldi and Lidl have made it tough for British supermarkets
The mega merger between Sainsbury’s and Asda could be bad news for suppliers.
Rather than working with two supermarkets, they would be forced to negotiate with one retail giant.
It could heap extra pressure on suppliers and farmers to drive down their prices even further.
Such a move would add to their woes after already taking a significant hit on price as a result of the supermarket price war, which heaped triggered financial stress.
Will investors welcome the deal?
As well as the competition authorities, the success of the deal will depend on the blessing of investors.
Qatar Investment Authority, which holds a 22% stake in Sainsbury, is said to be aware of the merger talks and is supportives of the discussions, according to Reuters.
Andrew Gwynn, food retail analyst at Exane BNP Paribs, said he expects the announcement “will initially be positively received” for Sainsbury’s shareholders.
However, he warned that the deal posed “risks” if  the enlarged business is forced to offload a significant number of stores “which eats up a large part of the synergies.”
He added: “For Tesco, the news is a negative we think given that if it completes, it creates a much large competitor.
“Morrisons too could face materially more competition but the news could be taken as a positive on the basis that the group is the natural acquirer of stores that need to be sold to satisfy competition authorities.”
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