Section 3- Barriers to the merger
Barriers to the merger include the stakeholders involved how they may react to the situation.
One of the first is an external barrier of the CMA stopping the merger if they have too much market share and creating a monopolised market. This was stopped back in 2003 when Asda wanted to buy out Safeway’s which was then handed to Morrisons which had a smaller market share. (Pettinger, 2018). If the merger is called off, both companies will lose all of their investment and potentially the respect of their staff who have been put through a failed venture. If the plan is successful, they might have to work against Tesco/Booker in a duopoly meaning they will compete mainly against each other to bring in new customers. Although they have a duopoly empire, they still need to focus on smaller departments concerning Aldi and Lidl. With the merger they must remember how to stay price-focused, otherwise, the growing industry of discount shops will chip away at their market share.
An internal barrier for the merger is within the staff members themselves. They might disagree with the choices and not like all of the changes being made within their side of the business. Their resistance will then make it more difficult to run smoothly, having to work closely with unions to make sure all staff members views are considered, especially as they are stakeholders in their own right. Steady communication with staff members keeps them involved and proves they are valued within the merge. Educating them on the merge will make the transition easier as they will already have an understanding. There could potentially be an overlap of agitated stakeholders, including staff, and some of the integration issues. This could be staff being upset because of redundancies. As the two supermarkets are coming together, there is no need for two of the same roles. This takes up time of finding the right candidate to continue their position. This is difficult because neither will be used to the new atmosphere as they will have to adapt their role to fit into the new mechanism.
A stakeholder which also needs to be considered as a barrier would be the customers investing themselves in the newly merged business. Sainsbury’s and Asda have very different styles and with adaptations being made some might dislike the change and choose to stop showing loyalty with the respective supermarket. This is obstructing the merger, as with just like staff, the change must be broken in slowly with regular updates, so people can acclimatise to the unity of Asda and Sainsbury’s.
A conflict of interest is another barrier to the merge. As two massive and independent companies become reliant on each other and work cohesively together, opinions will differ which if not controlled will delay progress. Although both do obviously focus on customer service, Sainsbury’s think more strongly from this which means they might be reluctant to lower prices which is risky due to the continuing rise in trying to decrease selling prices. Asda should bring in their techniques and try to explain that there must be a steady balance of pricing and customer service, which is an advantage they have over competitors like Lidl.
Section 4- Conclusion and Post merger integration
Asda and Sainsbury’s have lots to consider for the future like; potential job losses, suppliers facing monopsony power, investments in technology and the challenge of functioning in a changing market.
If the market has changed to fit the likes to their merger, Asda and Sainsburys must be aware that other companies could follow suit and create new businesses to create harsher competition. Although they are in a duopoly with Tesco/Booker, they must track the way discounter shops like Aldi and Lidl are functioning as customers are becoming less picky with where they shop and care more about cheap deals. These discounters have proven they are contestable by reducing the supernormal profits of the established firms (economicshelp.org).
Financial- Something to be aware of is the financial stability of the market. There was a recession back with the late 2000s which massively drained companies and hindered their success, often causing new businesses to fail. If something like this were to happen again, the merged company must have an action plan behind them to avoid any surprise set-backs like a loss in revenue. The effect a recession would have on the merger would be the lack of investment, holding back potentially successful ideas. To overcome this, they need to prove to stakeholders that it can be positive despite a harsher economic climate.
However, the merge means they are a new firm which can challenge the changing market and can take lead and start new ideas in a market which is totally adaptable. As the consumer is less concerned with where their shop is coming from (middle classes starting to shop in Aldi), the merger can take control and focus on new ways of increasing their profits as they have a fresh start. Moving away from older ideas is risky but can have massive payoffs if successful. Even if Asda/Sainsburys gains the most power, their prices might not have to be higher if they are regulated by the government. This could mean having controls over pricing and putting a limit on, which works similarly to the CMA controlling supermarket chains and restricting them from having too much power. Overall, the merger can profit from economies of scale, but the consumer isn’t going to be affected by monopoly prices.
Sociocultural- A softer issue of the merge is whether the current customers of both stores will be on board with the merge. Customers often don’t like change and the culture behind the merge will be adapted to fit both companies’ policies. The merge of customer focus and price focus is a challenge and needs to get the balance right. A lot of people might not like shopping in Asda because they want an experience and that’s why they go to Sainsbury’s, but with the merge, the atmosphere will change.
Financial issues could hinder the future success of the merge because due to the changing market. Due to being in a monopsony situation, suppliers might alter their prices and squeeze on profits, although a benefit of the merger would be economies of scale and lower buying prices.
Investment in new technology will become apparent as it is important to invest in research and development, so they can discover new products and ideas. The merge helps Asda and Sainsburys become more profitable and have a greater pool of funds for research and development. This is important, so they can work on trial and error and make sure the end result is effective.
This graph shows that the Asda and Sainsburys merge will have 3.8% more market share than Tesco, which is more than Iceland’s entire share. This is good because although Tesco has their Booker merge, that isn’t necessarily a supermarket so can’t take up much of the market share, although they will struggle to compete against them when bulk buying is concerned.