Sainsbury’s lagged supermarket rivals over Christmas, raising stakes for the regulator’s decision on its Asda deal.
Stakes raised for Asda buy
With food sales growth swinging wildly between 0.5% and 2% in preceding quarters though, grocery isn't exactly Sainsbury’s anchor. The fact is, when rivals pull out the stops, typically over Christmas, Sainsbury’s usually robust food business faces pressure; partly due to the group’s tricky mid-market position. Together with the underlying group sales let down in Q4, these conditions raise the stakes for the acquisition of Asda (the winner in Christmas sales growth stakes, according to Nielsen and Kantar). More to the point, the CMA's decision on potential market share remedies (store disposals) is even more critical now. The group has been fairly clear that the rationale of the deal will be undermined if the regulator requires store sales in the hundreds.
Suppliers in focus
Preliminary CMA thinking, released in the autumn— that it will consider discounters and Amazon—seemed to be in Sainsbury’s favour. The outcome of a broader review should prescribe fewer store disposals. Sainsbury’s goal of taking more share via scale would then be in sight. Still, the supplier piece is less predictable after the CMA signalled that buying power inequalities would also be a priority. Provisional findings are likely within weeks, ahead of the 5th March statutory deadline.
CMA holds retail cards
After fair but tortuous progress by supermarkets in late-2018—also likely to be reflected in Tesco figures tomorrow—investors will zero in on operators with the best perceived defences for the year ahead. Shares in all Big 3 supermarkets sagged sharply in 2018. Sainsbury’s was actually 41% higher in August. Consequently, the CMA’s decisions will rock the sector further and decide whether Sainsbury’s shares unwind even more.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.