A source close to Somerfield said that first-round bids are due in the next two weeks. Asda has emerged as the front-runner and industry sources fully expect it to make a bid for the whole 900-store Somerfield chain, although it will probably sell off some stores where there is overlap between both chains.
However, if Asda did make a provisional bid this month, its timing would be surprising, given that the Competition Commission is scheduled to deliver its report on remedies in its grocery inquiry later this month. It would also be a huge shock if Asda lodged a full-blown bid ahead of the Commission delivering its final report on the grocery sector before May 8. The smart money would be on Asda making a bid after May 8, although the verve of Somerfield’s private equity owners to sell should not be underestimated.
A move on Somerfield by Asda would have major ramifications for the Wal-Mart-owned grocer’s operations in the UK, as well as the wider grocery sector. Asda would have to venture into unchartered territory in terms of the scale, frequency and product offer for deliveries to Somerfield’s much smaller stores, which are typically about 7,000 sq ft. Whether Asda would radically change its pricing strategy, set up a separate distribution centre to serve a convenience store estate or launch a fleet of much smaller delivery lorries are just some of the questions chief executive Andy Bond and his team will have to consider.
For the wider grocery sector, a bid for Somerfield would transform the structure of the sector in one fell swoop. For a start, it would blow away the idea of a big four, leaving a big two – Tesco and Asda. According to TNS Worldpanel, Somerfield has a 3.7 per cent market share, while Tesco has 31.5 per cent, Asda has 16.7 per cent, Sainsbury’s has 16.4 per cent and Morrisons has 11.4 per cent. Certainly, Somerfield is probably the last chance for Asda – which only has 336 stores compared with Tesco's estate of almost 2,000 shops, including Tesco Express – to make a serious dent in Tesco’s stranglehold on the market.
A move into convenience stores by Asda would probably be good news for UK consumers, because the grocer would be able to offer substantially lower prices than Somerfield. However, it would be bad news for the profit margins of other operators in the convenience sector, including The Co-op, Spar and Sainsbury’s. With its deep pockets, Tesco would be the best equipped to combat Asda parking its tanks on the lawn of its convenience store estate.
However, Retail Week believes that the Somerfield bid saga has plenty of legs left. Certainly, other players – such as The Co-operative Group, which has had a team in London speaking to investment bank Citi, which is conducting the auction – could throw their hat into the ring.
But, for the time being, Asda appears to be the horse that the industry is tipping to ride in to rescue Somerfield’s keen-to-sell owners.
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