May has been a pretty quiet month for business news. However, the beginning of the month saw the announcement of a mega-merger in the grocery industry. The story has been losing momentum while the Competitions and Markets Authority (CMA) considers whether or not to wave through the Sainsbury’s / ASDA deal, but it is sure to pop up again in the next couple of months when the CMA’s decision is expected.
The Sainsbury’s / ASDA mega-merger
The deal would make the combined business the largest grocer in the UK and bring extraordinary consolidation to the industry. Bringing together Sainsbury’s, which controls 15.9% of the market, and ASDA, which controls 15.4%, would create a business that leapfrogs the current leader, Tesco (27.6%). The result would be a market in which two companies controlled almost 60% of all retail food sales.
John Maltman, a former director of ASDA condemns the deal and calls on the CMA to block the tie-up. He says:
“Creating a duopoly with anything like 60 per cent of grocery sales and expecting it to work for customers is wishful thinking. This is a cost play which will [also] impact jobs in warehousing, distribution, stores, headquarters and suppliers.”
However, many expect the CMA to clear the deal without many changes given the relative ease with which the Tesco-Booker merger was cleared just a few months ago. Analysts from Shore Capital say
“we are not at all surprised to see further activity in the sector, post the unconditional clearance of the Tesco-Booker deal, [about] which there is still considerable incredulity in the trade from many suppliers, supermarkets and wholesalers alike.”
To win over the public, politicians and monopoly regulators, Mike Coupe, the current CEO of Sainsbury’s stresses that there are no planned store closures as a result of the merger, though admits that the CMA may require some amid concerns over consumer choice.
Furthermore, Coupe claims boldly that the combined business would cut prices on everyday products by around 10%, but refused to confirm which products would be reduced or the overall value of the price cut to customers.
The CMA should be very careful with these vague assurances that the merger will protect staff and help hard-pressed shoppers. When Kraft took over Cadbury’s in 2009, it promised to keep open a plant in Somerdale, but then decided to shut the factory once the deal had been approved by the CMA, enraging the public and MPs.
So, whose reputation is at risk?
If the CMA waves through this audacious deal, particularly without extracting a fully-costed and guaranteed price cut for consumers, it is likely to damage its reputation because it would be seen as a toothless regulator which has failed to learn from previous mistakes.
If the CMA blocks the Sainsbury’s/ASDA merger, the reputations of both supermarkets will be put at risk. By resorting to this merger of giants, Sainsbury’s and ASDA have effectively run up for sale signs over their shops. According to Maltman, “both Sainsbury’s and ASDA should be considered acquisition targets” because the proposed merger suggests that the management teams have run out of ideas in competing in the cut throat grocery sector with the likes of Tesco, the discounters and Amazon, which has been threatening to enter food retail in the UK.
Either way, this proposed merger is likely to hurt someone’s reputation.
To minimise the damage the parties involved must engage with the public, media and politicians quickly as the situation changes making sure to explain the reasons for their actions concisely.
They also need to apologise for failings, no matter how small. For example, it would have been easy for Coupe to brush-off or ignore criticism after he was filmed absentmindedly singing ‘We’re in the Money’ in preparation for an interview about the proposed £12bn merger. To minimise reputational damage, he quite rightly apologised and explained:
“This was an unguarded moment trying to compose myself before a TV interview. It was an unfortunate choice of song, from the musical 42nd Street which I saw last year and I apologise if I have offended anyone.”
The adage made famous by John Wayne, ‘never apologise, never explain’, may work for hard men of the Wild West, but it doesn’t in the consensual world of reputation management, because here trust is more important than control. Reputation and trust cannot be imposed, they have to be won. To win them, organisations need to ‘apologise easily, explain always’.