UK grocers Asda and Sainsbury are reportedly in merger talks, and not just because of Amazon

A bigger selection.
A bigger selection.
Image: Reuters/Peter Nicholls
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The 149-year-old British grocer Sainsbury is reportedly in talks to buy Asda, which was acquired by Walmart in 1999. A deal could come as early as Monday, according to Sky News, which didn’t disclose its sources. A successful tie-up would create the UK’s biggest grocery chain, pushing the combined companies’ market share past Tesco.

UK retailers are threatened on multiple fronts. The British pound has fallen since Brexit, raising grocers’ import costs and (ahem) eating into profit margins. The Sainsbury and Asda combination might seem odd to consumers—Asda targets customers on tighter budgets, while Sainsbury is seen as a more affluent brand. But a merged company would potentially be able to use its greater to size to secure better prices from suppliers.

British retailers also have to maneuver against Amazon, which acquired (and slashed prices at) Whole Foods last year and has a distribution agreement with UK grocer Morrisons (paywall). Asda also is under pressure from competing discount grocers as well. Walmart bought Asda for £6.7 billion ($6.7 billion) in 1999, according to Bloomberg. Since then, the grocer has been undercut by German discounters Lidl and Aldi.

A key question is how competition watchdogs will respond to the overture to create a British mega grocer, as well as the reaction by Qatar Investment Authority, which owns more than 20% of Sainsbury’s.