Sainsbury’s entered discussions with Morrisons earlier this year to explore a potential merger with its rival grocery chain.
The early stage talks between the two supermarkets took place over a three-month period from November last year to February before Sainsbury’s walked away, according to The Financial Times.
The situation is no longer live, but retail consultancy sources believe consolidation in the grocery sector is inevitable in near future given the changing shape of the competitive landscape.
Sainsbury’s and Morrisons are yet to comment on the stories first reported by The FT and Sky News.
A merger between the two supermarkets would represent the biggest shake-up of the sector since both Asda and Morrisons were taken over by private equity firms in 2020 and 2021 respectively.
Any deal would likely draw the attention of the Competition and Markets Authority (CMA), especially given worries in Westminster about persistent food inflation.
A previous attempt by Sainsbury’s to secure a combination with Asda in 2019 was ultimately blocked by the monopoly watchdog because of fears of reduced competition and potential for higher prices for shoppers.
However, competition in the sector has intensified in the intervening years as Aldi and Lidl continue to open more stores and grab more market share. Both German discounters have overtaken Morrisons in terms of share, with Aldi closing in on surpassing Asda to become the UK’s third biggest food retailer.
A combination of Sainsbury’s and Morrisons would create a group with a market share of 23.6%, according to the most recent data from Worldpanel. Together the two supermarkets would still sit behind Tesco, which commands a 27.8% share of the market and is aiming to reach 30% in the coming years.
A recent decision by the Groceries Code Adjudicator to view the discounters as ‘large grocery retailers’ is also an important consideration for any competition concerns.
And Morrisons and Asda have both struggled since coming under private equity ownership, loading both retailers with a large debt pile to service.
Meanwhile, Sainsbury’s has made progress under CEO Simon Roberts to focus more squarely on the food operations of the supermarket, which has included the disposal of banking operations and, in July, the agreement to sell general merchandise retailer Argos.
Markets barely reacted to the emergence of the news of a talks between Sainsbury’s and Morrisons yesterday, with Sainsbury’s shares on the London Stock Exchange staying steady.
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