The past year has witnessed a monumental shift in strategy from the UK’s leading grocers as supermarket chains seek to open up new revenue streams.
The Bradford-based retailer launched a tie-up that leveraged its vertically integrated model to supply thousands of fresh, frozen and ambient products to the etail titan.
The grocer has inherited Argos’ general merchandise offer to create one of the country’s biggest food and non-food businesses, while also harnessing its Fast Track delivery proposition to enhance its fulfilment credentials.
And last month, Tesco shocked the City when it revealed it had agreed to acquire food wholesaler Booker in a £3.7bn deal, as it bids to increase its footprint in the fast-growing convenience and foodservice markets.
The trio of deals have turned up the heat on big four rival Asda, but new boss Sean Clarke will surely be plotting a response.
With the cash of US retail Goliath Walmart behind it, could Asda look to pull off an acquisition of its own?
Retail Week looks at the businesses that could be on the embattled grocer’s shopping list.
Under Alex Baldock, Shop Direct is fast becoming a digital leader, not just in the UK, but globally.
“The combination of Asda and Shop Direct would make sense from a consumer perspective”
Walmart is ploughing billions into IT, ecommerce and technology in its homeland and Shop Direct’s focus on similar areas, not to mention its development of artificial intelligence, could prove attractive.
Asda’s George clothing brand has proved a success, but the fashion credentials of Very, alongside its homewares, entertainment and toys proposition, would further enhance its non-food business.
The combination of Asda and Shop Direct would make sense from a consumer perspective, too.
The crossover in customer demographic of the two businesses could create a lucrative halo effect, driving cross-business sales.
Shop Direct owners the Barclay brothers are understood to be pursuing a sale of their majority stake, but may not be keen on the publicity of a float.
A sale to a big corporate buyer could therefore be the most feasible option, which could pave the way for an Asda bid.
Asda is already working with French sports and leisure giant Decathlon in a handful of its supermarkets as it seeks to make better use of space in its largest sheds.
“Could Asda’s small-scale tie-up with Decathlon pave the way for a larger deal?”
Although the grocer has been tight-lipped on the success of the partnership, anecdotal evidence suggests the shop-in-shops are performing well, with both businesses reaping the rewards from their similar customer bases in the form of increased sales.
In the same way that Sainsbury’s piloted Argos concessions before acquiring the business, could Asda’s small-scale tie-up with Decathlon pave the way for a larger deal?
Decathlon would be unlikely to sell off its UK business of around 25 stores, which would leave Walmart facing the unlikely prospect of attempting to acquire the entire global business.
That would be a hugely expensive option, but with decathlon present in a number of Walmart’s other overseas markets including China, India, Brazil and Mexico, a merger between Decathlon and Asda’s parent company may not be completely beyond the realms of possibility.
Holland & Barrett
One of the biggest trends within grocery is the shift towards health and wellbeing, an area in which Asda currently has little expertise, but could be keen to grow its presence.
“Asda’s US bankrollers in Bentonville could be attracted by Holland & Barrett’s growth plans”
Not only has Holland & Barrett tapped into that market through more than 600 standalone UK stores, but it also has form with supermarket tie-ups, with a clutch of shop-in-shops currently operating inside Tesco supermarkets.
While Holland & Barrett concessions could plug a gap in Asda’s proposition and complement Decathlon’s sports and leisure offer, questions would be asked about the crossover in customer demographics.
Asda is renowned for its everyday low price model, while Holland & Barrett sells its wares at a higher price point, which could prove a turn-off for the grocer’s core shopper base.
However, Asda’s US bankrollers in Bentonville could be attracted by Holland & Barrett’s growth plans – it aims to reach £1bn in sales by 2020 – and it’s expanding its overseas footprint, with plans to launch in South Korea and India.
Should Asda seek to pursue similar avenues of growth to rivals Tesco and Morrisons, by tapping into the lucrative wholesale market, cash and carry operator Bestway could be on its hit list.
“In addition to its wholesale and convenience business, Bestway Group boasts the UK’s third largest pharmacy chain, Well Pharmacy”
The business, which operates in both the UK and Pakistan, is Britain’s second largest wholesaler behind Booker, serving 125,000 independent retailers and caterers from its 64 warehouses across the country.
It also owns the Best One symbol group, which could prove another lure for Asda given its lack of presence in Britain’s fast-growing convenience market.
In addition to its wholesale and convenience business, Bestway Group boasts the UK’s third largest pharmacy chain, Well Pharmacy.
The business was rebranded after Bestway acquired it from the Co-op in a £620m deal back in July 2014 and Asda could see some potential to install Well Pharmacies in its larger supermarkets. This would save it cash by allowing it to take over the running of its in-store pharmacies.
Another wholesaler that could fall onto Asda’s radar is Brakes, which specialises in the foodservice sector as opposed to cash and carry.
“Should Sysco opt to focus on its domestic market and offload the European arm, Asda could be among those alerted to its”
The company is based in Kent, but supplies food and drink to catering firms in the UK, Ireland, France and Sweden.
However, its ownership by US giant Sysco Corporation would almost certainly prove a stumbling block to any prospective deal.
The group actually attempted to broaden its food distribution footprint in the US in 2013, but a planned $8.2bn acquisition of rival US Foods was blocked by a US federal judge on competition grounds.
However, should Sysco opt to focus on its domestic market and offload the European arm, Asda could be among those alerted to its availability.
If branching out into the foodservice market appeals to Asda’s boss Clarke, Deliveroo may also enter his thinking.
“Walmart’s heads may be turned by its multinational reach and ongoing investment in technology”
The online food delivery company has expanded rapidly since launching in 2013 and now serves almost 100 cities in countries ranging from Italy to Singapore.
Although it is currently in the red – losses widened to £18.1m in the year to December 2015 as it ploughed cash into expansion – Walmart’s heads may be turned by its multinational reach and ongoing investment in technology.
Just last month, Deliveroo unveiled plans to create 300 tech jobs in the UK when it opens its new head office later this year.
At a more basic level, Asda could also look to emulate Sainsbury’s Chop Chop app – which delivers groceries to customers in limited areas of Central London within an hour by bicycle – by harnessing Deliveroo’s staff to make smaller deliveries in bigger cities.