Sainsbury’s has said its proposed £12bn merger with Asda does not include any planned store closures. However, the companies’ combined 2,800-store portfolio is expected to come under the scrutiny of the Competition & Markets Authority.
Sainsbury’s boss Mike Coupe was adamant that all Sainsbury’s and Asda stores will continue to trade but has acknowledged the “possibility” of some disposals after the CMA’s inquiry.
Analysis by EG’s Radius Data Exchange has found that 23% of Asda stores and 12% of Sainsbury’s stores lie within 1km of each other, which could create competition concerns in addition for medium to long-term rationalisation potential.
This is despite the fact that Sainsbury’s overall store portfolio is mainly in the south, the Midlands and Northern Ireland, while Asda stores are centred on the north of England, Scotland and Wales.
The two supermarkets have a combined portfolio totalling more than 118m sq ft (including Argos outlets, acquired by Sainsbury’s in 2016).
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The two chains this morning said a combined group would “reduce Sainsbury’s lease-adjusted leverage, benefiting from Asda’s freehold property ownership.”
Asda is understood to own the freehold on around 75% of its stores. Sainsbury’s estate is around 50% freehold.
EG’s Radius Data Exchange has mapped all Sainsbury’s and Asda stores across the country.
The data shows a total of 142 Asda stores fall within a 1km radius of a Sainsbury’s store. About 23% of the total Asda stores (605), which doesn’t include Asda filling stations and pickup locations.
Asda stores within 1km of a Sainsbury’s
Concurrently, a total of 174 Sainsbury’s stores lie within a 1km radius of an Asda store, 12% of the total number (1404) of Sainsbury’s stores.
Sainsbury’s stores within 1km of an Asda
Coupe said average store sizes at the two supermarkets were “similar”, although Asda stores were “slightly smaller” than Sainsbury’s shops on average.
However, according to James Child, EG retail analyst, that is where the similarities end. He said: “The physical portfolios of both supermarkets are very different. Sainsbury’s has its local stores which operates as its convenience offer in city and town centres, while Asda still predominantly operates out of typical and traditional larger big-box supermarkets.
“Geographically we can see that difference in location too with Asda dominating northern areas while Sainsbury’s certainly has a dominance in the South East.
“Potential ramifications of the merger could create various opportunity areas, if there are store closures in the distant future. Landlords could be at risk of having to fill a huge amount of empty space – and filling those vacant stores with tenants may become problematic.
“With the imminent closures of many other “big-box” retailers such as Toys R Us, Carpetright and Mothercare, space could be left empty for some time. With many value and homeware brands already eating up space from the BHS collapse in 2016, there may simply be too much space on the market.”
Take in to account the development pipeline of brand new space which is set to top 27m sq ft by the end of 2022.
Child added: “The opportunity could present itself to apply for change of use, perhaps to leisure, or even demolition and the addition of residential units.”
James Watson, head of retail capital markets at Colliers International also noted that in the event of closures, demand from retailers for vacant secondary stores would be “weak” given current market conditions.
Consequently, Watson predicted the sites are “likely to be redeveloped into mixed-use, residentially led schemes”.
Stephen Springham, head of retail research at Knight Frank, said there “will inevitably be some store disposals”, although he was keen to distance these from store closures as they would merely entail transfer of ownership to other operators.
The proposed deal is expected to generate £75m from property “opportunities”, including more Argos outlets in Asda stores.
Coupe said there was scope to set up around 250 Argos shop-in-shops at Asda, about the same number as in Sainsbury’s stores.
Meanwhile, there are no proposed changes to their respective head office operations. Asda’s HQ will remain at Asda House in Leeds, while Sainsbury’s will be run from 33 Holborn in London.
Asda operates 584 standalone grocery stores, 33 Asda Living stores and 18 petrol stations. Meanwhile, Sainsbury’s has more than 600 supermarkets and more than 800 Sainsbury’s Local convenience stores, with a further 800 Argos stores, tallying more than 2,200 locations in total.
