Sainsbury’s plans to expand its multichannel offer if it acquires Argos, and effective integration will be essential to achieve that.

Sainsbury’s chief executive Mike Coupe said acquiring Argos would ‘accelerate’ the grocer’s multichannel proposition and enable it to compete with names such as Amazon, John Lewis and Marks & Spencer.

Developing Sainsbury’s non-food offer and advancing its technology proposition are key factors in the grocer’s plans for growth. But why was Argos chosen as the retail partner to accomplish these aims?

It’s clear that one of the reasons that Sainsbury’s is interested in Argos was because of its logistics capabilities. Partly that is down to supply chain sophistication and business model, but it’s also down to systems.

Each Argos store is run like a mini-warehouse which allows Argos’s systems to provide excellent stock visibility data for customers on its website.

Similarly, the retailer’s market-leading fulfilment options, such as same-day delivery and click-and-collect are partly down to its IT systems and the stock information it is able to utilise.

The risk of integration

The benefits of this level of stock visibility and fulfilment may appeal to Sainsbury’s, but Coupe will be aware of how high the stakes are should the deal go ahead.

Sainsbury’s famously reported its first ever loss 10 years ago after a failed IT project caused huge replenishment problems, leading the grocer to abandon some automated systems in favour of more shopfloor staff.

Since that debacle, the supermarket’s IT department redeemed itself under the stewardship of chief information officers Angela Morrison and Rob Fraser.

Its present digital and technology boss Jon Rudoe comes very much from an ecommerce background, which culturally should be a good fit with Argos.

Nevertheless, that failure a decade ago serves as a reminder of the catastrophic results of technology implementations going wrong.

A different kind of acquisition

Argos does not have appropriate systems – EPoS, self-checkout, supply chain systems that can deal with fresh, frozen and ambient – to run the grocery side of Sainsbury’s operation.

“The IT question comes down to how far the supermarket is prepared to adopt Argos’ systems for its non-food offer”

Mark Lewis, Practicology

So the IT question comes down to how far the supermarket is prepared to adopt Argos’ systems for its non-food offer.

If Sainsbury’s wants to incorporate Argos’ non-food offer into its stores then it would be madness to do away with the systems Argos already has in place.

So unlike in other mergers – the Morrisons and Safeway deal is one from retail history that springs to mind – it is unlikely to be a case of one retailer having to wholesale adopt the other’s technology stack.

Concession approach

The easiest way for Sainsbury’s to integrate Argos’s offer into its stores is through a shop-in-shop. This negates the majority of the technology integration issues because it means Argos products won’t be sold through Sainsbury’s tills and customers won’t be able to use their Nectar cards at the Argos tills.

However, as a first step it is likely that the retailers will want to do some analysis of their respective customer data to find overlaps in who their customers are and what they purchase.

Argos Sainsburys

Argos Sainsburys

Argos already has shop-in-shops at some larger Sainsbury’s stores

Those overlaps will then be benchmarked as they make other changes such as introducing the Argos fascia within Sainsbury’s.

However, there is no requirement to actually integrate their respective CRM systems or data warehouses in order to do this - they can pull all the data required from disparate sources in order to analyse it, even on an ongoing basis.

The grocer’s interest in Argos has merit from a technological standpoint because an acquisition could allow Sainsbury’s to advance its personalisation technology, customer base and fulfilment offer.

That said, Coupe will need to ensure a clear plan of action is in place to integrate the two companies’ respective technology systems effectively if the deal does go ahead.

  • Mark Lewis is deputy chief executive of strategic multichannel consultancy Practicology