Sainsbury's-Asda merger: What this means for store closures and job losses

Sainsbury’s boss Mike Coupe has claimed he won’t cut shop-floor jobs or close any stores as a result of the proposed £12bn mega-merger with Asda.

But is this credible?

The chief executive was careful to make no promises on back-office jobs. Many administrative functions will be duplicated meaning some jobs are highly likely to go.

Conservative MP Mark Menzies, who worked at Asda’s head office for 11 years, told the House of Commons that he did not believe the site would survive a few years after the merger.

He added that distribution centres “will be absolutely hammered a year or two years down the line if this merger goes ahead”.

For shop-floor staff which make up the majority of Sainsbury’s and Asda’s 350,000 employees the competition watchdog’s investigation will cause concern.

In a similar probe when Morrisons bought Safeway in a far smaller deal in 2003, the regulator forced the supermarkets to offload 53 stores.

So a Sainsbury’s-Asda probe would surely require the sale of stores in locations where the combined company would limit choice for shoppers. Coupe admitted as much on Friday morning but said he would miraculously not cut jobs as a result. How?

“Even if we have to divest stores they will be sold as trading entities,” he said. In other words, a rival will buy them and they will stay open.

But just who would snap them up? Only Tesco and Morrisons would remain as potential purchasers out of a new “big three” of supermarkets.

It’s far from certain they would look to acquire large numbers of stores.

The space race that saw supermarkets aggressively add new shops throughout the 2000s, particularly large out-of-town locations, is well and truly over.

Customers habits have changed. Fewer consumers do one big weekly shop, instead preferring regular trips to convenience stores or shopping online.

Aldi and Lidl are adding stores at a rapid rate but much of Asda and Sainsbury’s portfolio is likely to be a bad fit for the discounters, both of which favour smaller, more centrally located shops.

Some commentators have touted bargain retailers such as B&M as potential purchasers.

Richard Lim, chief executive of consultancy Retail Economics, says it is “inevitable” that the merged company will sell branches and he sees Morrison’s as the prime beneficiary.

But it will only buy the profitable stores in good locations that become available.

It is too early to say which Sainsbury’s or Asdas will disappear, or even how many, but we can make some guesses.

Analysis by Patrick O’Brien, research director at Global Data Retail, found 197 Asda stores that had a Sainsbury’s in the same postcode area (eg PL1). He broke this down further to reveal 75 areas where they are in the same postcode sector (eg: PL1 5). These could be the first for the chop.

On job cuts, Lim says the merger will speed up a process that has been underway for a decade.

“The number of people employed in retail has been shrinking by 1 per cent per year since 2008. The industry doesn’t require as much space and the role of employees is changing.” he said.

“If the merger does result in redundancies through being forced to sell stores or through cutting back office teams, ultimately this is about making a company that is fit for purpose in the future with a business model that works.”

Andy Brian, head of retail at Gordons law firm, said that despite what has been stated officially, “stores would have to close”.

“That’s not necessarily a bad thing for the brands, although it would, of course, be a bad thing for those store employees.”

During a debate on the takeover on Monday, Conservative MP Stephen Kerr said the concentration of supermarket power could have a “potentially devastating effect” on suppliers.

The two largest players would control 60 per cent of the market, allowing them to dictate terms to an even greater degree than at present.

For Sainsbury’s and Asda executives, the logic behind a £10bn supermarket mega-merger is clear – for shoppers, suppliers and workers the positives are less obvious.