The news that Sainsbury's plans to merge with Asda, which has been confirmed today, has come as quite a shock. It is a striking example of two major retailers taking a very bold move to address the ongoing challenges of an intensely competitive industry.
If the merger goes
ahead, the combined group will be led by Sainsbury's chief executive
Mike Coupe, who has said that this is
a “transformational opportunity to create a new force in UK retail, which
will be more competitive and give customers more of what they want now and in
the future.”
This statement
addresses the major challenges of competition and customer focus. Coupe has
also recognised the need to create a business that is “more dynamic,
more adaptable, more resilient” - better
able to respond to its ever-changing, fast-moving marketplace.
Combining two
well-established retailers will be a challenge. Coupe and the new
leadership team will need to manage the paradox of agile leadership: creating a
new, connected organisation while at the same time disrupting that new
organisation sufficiently to reinvent it in a way that can compete on a
sustainable basis with competitors. What does this require? A major shift
towards agile ways of working, with greater emphasis on simplicity, shorter
planning cycles, ruthless prioritisation focused on what customers want, and
embracing digital opportunities.
Couple has also said that the two supermarkets are "the
best possible fit" and there is a widespread view from industry analysts
that the two have complementary strengths on which they could collaborate. So,
for example Sainsbury’s is stronger in e-commerce and convenience stores, Asda
is more competitive on pricing and has a stronger clothing offer in George.
The supermarket industry is notoriously cut-throat and
has undergone great change in recent years as market leader Tesco has lost
market share while discounters Aldi and Lidl have increased theirs. Industry disruption has become the norm, but in
supermarket retailing that disruption has been coming from discounters or from
Amazon’s recent foray into the grocery market. We are less used to disruption
from large, long-established corporates.
If the merger goes ahead, can Sainsbury’s and Asda
merge and become both bigger and more agile? It will be a monumental challenge,
and will require a very strong leadership community in the new business,
willing to embrace new ways of thinking, leading and working. The alternative
is that the merger ends up being a defensive reaction to new market entrants
with a different business model, which may delay but not stop their ongoing
disruption of the sector.