The once clean line between the grocery and convenience channels is being blurred further with Bestway taking a £200m share of Sainsbury’s while Asda plans a mega-merger of its supermarket and forecourt businesses.
By Antony Begley
It wasn’t that long ago that the grocery and convenience channels were considered as entirely separate entities, if not downright sworn enemies. Back in the day the word ‘mult’ was invariably used by a local retailer as a pejorative term, a form of insult aimed at the big, bad supermarket chains with their massive budgets and their equally massive ambitions.
That once clear demarcation line between grocery and convenience, however, has become ever-blurrier over the years. Last month Bestway did their bit to accelerate the trend by taking a substantial stake in Sainsbury’s. So, where and how will it end?
The attraction of the convenience channel to big players is not new of course. Many of the major supermarkets have had a go at the channel, in one way or another – with varying degrees of success. Tesco Express and Sainsbury’s Local are only a couple of examples of the big boys’ attempts to gain a proper footing in smaller format retailing. But everybody from Amazon to B&Q have had a crack at the channel, again with varying degrees of success.
The blurring, however, moved up a gear in 2017 with Tesco’s £3.7bn acquisition of Booker. That move caused consternation in board rooms across the UK as competitors scrambled to work out how they could compete with a merger of the UK’s biggest supermarket chain with the UK’s biggest wholesaling business.
Then Asda was sold by Walmart to the Issa brothers in 2020 and private equity firm bought Morrisons a year later.
Since then we’ve seen a continuing wave of deals, partnerships, tie-ups and agreements as the market wrestles with the new grocery-convenience world order, the latest of which is Bestway’s near £200m investment in Sainsbury’s, with the potential for the wholesaler to take an even bigger position in the future.
For its £200m, Bestway got a 3.45% stake in the UK’s second-biggest supermarket, making it Sainsbury’s sixth-biggest shareholder. Exactly why Bestway made the punt is up for debate. Ostensibly, the company said the stake was purely “for investment purposes” but I doubt there are many people buying that argument. It won’t surprise anyone down the line if another reason for the investment emerges. A trading collaboration of some sort, for instance.
Interestingly, Bestway categorically stated that it was not considering a takeover bid – something the £4.5bn-turnover company could probably just about do if it really fancied. Under financial rules, however, the fact that it clearly stated it was not planning a takeover bid means it now can’t do so for at least six months – unless a rival bidder appears out of the undergrowth.
Meanwhile, Asda appears to be doing its best to blur the lines between grocery and convenience with a proposed mega merger of its supermarket and forecourt businesses that would create a retail giant worth more than £10bn with 581 supermarkets, 700 forecourts and over 100 convenience stores.
According to the GMB trade union, the latest attempt at the merger “isn’t in the interests of the 200,000 impacted workers, or the UK economy, or even consumers” but is, it says, being driven forward because it “suits the debt refinancing arrangements of a private equity firm and their business partners”.
Nadine Houghton, GMB National Officer, said: “This proposed merger raises the spectre of a private equity black hole on the UK high street. More and more of our essential household goods – from food to fuel – are controlled by unaccountable private equity backers.
“GMB stands on the side of hard-working families in calling for the role of the CMA to be expanded – giving greater regulatory oversight in relation to private equity buyouts and ensuring greater protection of both consumers and workers.”
So where does that leave independent local retailers? Convenience is hot and everybody wants a piece of the action, including global private equity firms with their infamously short attention spans and fast buck proclivities. We’ve already seen a supermarket buy a wholesaler and it probably wouldn’t surprise anyone to see a wholesaler buy a supermarket at some point in the future. Will grocery and convenience ultimately coagulate into one amorphous mass, the lot of it owned by three or four groups? It has happened before in other sectors. The vast majority of the global beer and spirits industries are owned by just a handful of players, for instance.
It’s a possibility, of course, but Scotland is, as ever, insulated to a certain extent because of the simple nature of the geography. This is God’s country, as we like to say. And he clearly made it on one of his more expansive days. Outwith the major cities, Scotland is particularly hard to service – which is why so few businesses try to do it properly.
There will be more consolidation in the future. Of that there is no doubt. But even the bottomless reserves of private equity and the equally bottomless ambitions of the supermarkets cannot overcome the simple fact that Scotland is big, not very populous and very, very spread out.
Maybe God’s not daft after all.
