It’s been a busy week for supermarket dealmaking, especially given very little has actually happened. Sainsbury’s is understood to have held talks with Morrisons’ private equity owner CD&R last winter before getting cold feet, while Tesco is reportedly among bidders for Majestic Wine. Neither has commented, but both stories say plenty about where bosses’ heads are at.

Tesco’s half-year results give us more clues. Profits were up 6.5% but shoppers are under pressure and cutting back on spending. The market leader’s UK like-for-like sales grew just 1.5%, way down on a year earlier, with the second quarter its weakest since 2022. Its strength in depth is doing a lot of heavy lifting, with the retailer relying on Finest flying, cost discipline, growing popularity for Whoosh rapid delivery and incremental growth from its retail media business.

The mixed bag of numbers highlights the problem. If mighty Tesco, with almost 28% share and every lever to pull, is seeing growth slipping, nobody else will find it easy. So far, CEO Ken Murphy has kept an admirable grasp on prices. Tesco ended the half as the cheapest full-line grocer and had record customer satisfaction scores. But inflation will not be manageable forever.

It’s no surprise in this environment that Sainsbury’s went looking for scale. Merging with Morrisons would have given it almost 24% of the market. Consolidation would have offered big synergies, depending in large part on increased buying power. Suppliers should assume any mergers will seek savings from them. But it would also have been a big distraction.

With Sainsbury’s M&A plans seemingly on ice for now, the next consolidation play may not come from the domestic market. Overseas grocery chains may well follow in Walmart’s earlier Asda footsteps and Amazon has the firepower to do any deal it wants, as well as being a wounded beast after its UK bricks & mortar failure earlier this year. Nobody should rule out the US titan making a big move to grab a slice of the industry.

Whatever happens next, the same problem awaits any new owners: growth in grocery spending remains elusive. You can merge your way to scale, but not to customer demand.

My picks this week: 

1. With a GCA clampdown looming on retailer resistance to cost price increases, Tesco CEO Ken Murphy has defended the supermarket’s negotiation stance with suppliers. Commenting as Tesco announced its first-quarter results on Thursday, Murphy pointed to a “duty to protect customers” from exaggerated inflation forecasts earlier this year. 

2. Diageo has culled its breakthrough innovation department as part of its far-reaching global restructure. Responsibility for non-product NPD will once again sit within Diageo’s local and category-specific innovation teams.

3. All ham sandwiches sold by major supermarkets still contain nitrites despite recent efforts from retailers to move away from the cancer-linked additive. Major retailers still have a blind spot when it comes to prepared food and ready meals, analysis of Assosia data shows, with the total number of lines including the chemical at 1,972.

4. The delivery robot wars have stepped up a gear with the arrival of OpenAI CEO Sam Altman-backed Coco Robotics to these shores. It’s partnering with Deliveroo and has plans to roll out in the same locations rival Starship Technologies bots are currently roaming. 

5. Fears of the impact of weight-loss drugs on food and drink sales have been high this year, after treatments received regulatory approval in tablet form for the first time. But analysis by Mumsnet for The Grocer suggests family meals and children’s diets are largely unchanged by a household member taking GLP-1 weight-loss medication. 

6. Scores of mushroom supplement ads are being marketed online as treatments for serious medical conditions such as COPD, asthma and smoking-related lung damage, the ASA has warned. More than half (53%) of mushroom supplement ads analysed by the ASA were classified as “high risk”, while around 50 ads were identified for “follow-up action due to risk of physical harm”. 

7. Are loyalty schemes helping customers? Aldi CEO Giles Hurley has made clear he thinks not, and this week the chief of Lidl GB hit back, saying its loyalty programme was “one of our biggest success stories”. 

8. Flake Bake has gone from strength to strength since its co-founder Mike Williams took it to Aldi’s TV show. Now he’s plotting further expansion while preserving the quality that has won over customers.

Thanks for reading. We’re always keen to hear your thoughts, so please do email with any questions, comments or feedback on sarah.vizard@thegrocer.co.uk.

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