Mike Coupe’s Sainsbury-Asda coup could still unravel

Appearances can be deceptive. I must admit, when I first met Mike Coupe, I never marked him down as a takeover king.

We like those who strike the mega-deals to be aggressive buccaneers, always on the lookout for a killing. Coupe, a quiet, self-effacing character, a physics graduate, did not fit the stereotype. Among retailers, too, he was not a member of the flash, brash brigade.

He was, though, obviously analytical and calculating. There was, as well, a glint in his eyes, that suggested a steely determination. Coupe was someone after all, who was a rising star at Asda, only to quit for J Sainsbury. At Sainsbury’s, he was content for years to stay second fiddle to Justin King, who had been his junior at Asda. When King left, Coupe glided into the top job.

He also liked to play rock guitar and to sing, once to 5,000 employees, and has apparently begun writing his autobiography. But even so.

Coupe has now presided over two retail mergers, each of which was spectacular and game-changing. Buying Argos, partly for its branches, but mainly for its e-commerce prowess (as good as Amazon’s), was a masterstroke. Now comes the proposed marriage with Asda, to create a combined group of 2,800 stores with sales of £51bn, a workforce of 330,000 and overtaking Tesco to become the UK’s largest retailer. Please, count me out of a session of poker with Coupe, I would not stand a chance.

In taking over Asda, Coupe is creating a duopoly, of Sainsbury-Asda and Tesco. There are other players, of course, but they rank far behind. In a single stroke, Sainsbury has jumped out from under, going from second to first. It’s audacious, and has left the rest of the industry gasping.

Is it, though, as clever as it first appears? Coupe’s move, and Asda’s agreement come to that, is driven by adversity. It’s motivated by the knowledge that the UK consumer is searching increasingly for value, that Sainsbury struggles to offer the same level of discounting as a refocused Tesco, newly teamed up with Booker, the major wholesaler. That’s why Coupe has been quick to stress that the new group’s enhanced buying power enables the new group to offer 10 per cent price cuts. That may bring it closer to Tesco but it’s still not the sort of discount necessary to match the booming German budget invaders of Aldi and Lidl.

Coupe is not the sort to have not done his groundwork. His lawyers will have told him they expect the bid to be cleared by the Competition and Markets Authority. They would have said to expect some forced store sales but nothing too serious.

Their advice, though, would be based on the CMA having cleared the Tesco-Booker union. While it can, and will, be argued that the earlier deal also saw a boost in buying muscle for Tesco, it did not restrict the choice for the consumer. It was not a vertical takeover in the same market, but a horizontal one, comprising one company in one market purchasing another in a quite different field – a b2c retailer acquiring a b2b wholesaler. All that was affected was Tesco’s pricing, not the number of stores.

That green light, too, was given by a previous CMA chairman. It now has a new boss in Andrew Tyrie, the former Tory MP, who, when he was in the Commons, as chair of the Treasury Select Committee, gained a reputation for independence, for not being afraid of striking out. Tyrie is unlikely to be swayed by a claim that something must be granted just because it was granted previously.

Then, there is the not inconsiderable matter of the two brands, Coupe is maintaining the two will still exist, Asda and Sainsbury. The latter is more upmarket of the former, but they share a middle ground.

Research from UBS shows that two in five of Asda’s largest stores are within five minutes drive of a Sainsbury’s supermarket. It’s possible the CMA will order radical disposals, but there’s still bound to be overlap. That blurring is further evidenced by data from Kantar Worldpanel showing that about 9m households have shopped at both chains within the past three months.

There are CEOs who swear by divide and rule, of setting one division against another, but it’s hard to envisage where the benefit lies for a single owner in having these two compete against each other to sell the same goods bought by the same group of buyers to the same customers. At the very least it does not make for a happy management ship.

There’s no doubt the catalyst for the merger is Tesco’s purchase of Booker. But the galvanising influence on that deal was Amazon, as it is in Sainsbury’s swoop on Asda. This, before Amazon has even made its presence felt in UK groceries.

But that’s the point: Amazon is coming, and the incumbents are petrified. Sainsbury will say the US online behemoth is not a factor – and it isn’t, in the sense this is about two UK grocers getting together – but it’s not far from their minds. The fact is, this may create a major force in UK retailing, but compared with Amazon it’s a minnow. When the time is right, Amazon can have the pick of the bunch – and that includes Sainsbury-Asda.

Coupe has undoubtedly staged a coup, and for that he deserves praise. His own delight, apparent when he sang “We’re in the Money” in an unguarded moment on camera in-between TV interviews, may prove to be justified. But power-grabs can sometimes be illusory. How this one finally turns out remains to be seen.

Chris Blackhurst is a former editor of The Independent, and executive director of C|T|F Partners, the campaigns and strategic communications advisory firm