Supermarket Sweep

While today marks the first of May and you may be tempted to find a pole to dance around, it also sees the end of April, some unsettled weather and the passing of one of this country’s gameshow hosts, Dale Winton.

One of Dale’s most well-known TV shows was Supermarket Sweep which aired on daytime television between 1990 and 2003 and hence popular with many students of that era – although it was on in the morning!
On the supermarket theme, Sainsbury’s, one of the UK’s leading supermarket chains who, over the weekend, announced plans to merge with Asda in an attempt to claim a 31.6% market share and overtake Tesco’s 27.6% share.
Such scale will bring the attempted merger under the scrutiny of the Competition and Markets Authority (CMA). But who are the beneficiaries of such a proposed merger?
Consumers, suppliers, workers and/or shareholders?
The argument is probably that economies of scale will accrue to customers, possibly the same customers who have been shopping at Aldi and Lidl, the two German privately held disruptors to the supermarket establishment quasi-oligopoly that operated in the UK prior to their arrival.
Greater bargaining power will not help the suppliers though. Although the press announcement speaks of no store closures, that seems unlikely in the future. Staff cuts are likely with the largest cost saving coming from senior management cuts.
Clearly shareholders would appear to be the major beneficiaries, not least in the first instance, with Sainsbury’s share price rising by 20% since the merger announcement.

Déjà vu
All of this looks rather familiar to what has happened in the investment industry recently with the mergers of last year exampled by Janus/Henderson and Aberdeen/Standard Life. The latter of those two events saw a similar share price hike although subsequent events have been less rosy. Nonetheless, the mergers were clearly a desire to scale-up and ward off the threat from the passive asset gatherers.
There will still be those who prefer to shop for groceries elsewhere, with those who put the customer first – whether they be public or private companies and without squeezing even more out of their suppliers. Should you chose between quality and quantity, investors/customers versus shareholders?
Perhaps it is good to invest with those who put the investor first and ahead of shareholders?
This blog does not constitute investment advice.

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