Nett gains

One thing I wasn’t expecting at 9 o’clock this morning was a phone call telling me Asda had agreed a deal to take over a rival supermarket, even less that it would be Netto. We’ve all been trying to work out what ace Asda would pull out to try to get its business back on track, but no one would have anticipated this.

Maybe we shouldn’t be so surprised. Asda’s growth plans were going to be really difficult to achieve without an acquisiton and buying Netto gives it the scale it wants in small supermarkets at a stroke. Unlike larger rivals Aldi and Lidl, Netto has never really cracked the UK market and £778m feels like a generous price for 193 stores which aren’t in the best locations. They’ll probably be more comfortable concentrating on Denmark and Germany.

However, £778m is small change for Walmart to gain scale in UK supermarkets (although it will need to spend a small fortune getting them up to scratch too) and takes Asda to second place in the UK grocery market ahead of Sainsburys. (While Asda has been second in the TNS/Kantar figures for a long time, that was only because of the non-food spend going through its tills.)

Does this solve all Asda’s problems at a stroke? No. The Co-op/Somerfield deal, while on a much larger scale, has shown the challenges that come when one grocer tries to integrate another, while as a business Asda doesn’t have much experience of operating small stores. It is a very different business to running Supercentres, but new boss Andy Clarke’s very strong reputation as an operator should help.

The deal needs to be put in perspective too - it adds 0.8% of market share to Asda’s till roll. It doesn’t do anything to solve the underlying issues which have led shoppers to leave Asda for rivals. There were signs in this week’s Kantar numbers that over the past four weeks Asda might be starting to turn the corner - helped no doubt by the investment in marketing its Asda Price Guarantee - but it’s early days.

But what the Netto deal is above all is a statement of intent. It shows those of us who have doubted it that it is deadly serious about its ambition to be a clear second in food, and has the firepower to achieve it. Bearing in mind that its other ambition is to become number one in non-food, the question which becomes even more pertinent after today’s news is which general retailers it has in its sights.