Talks between major supermarket chains Asda and Sainsbury’s are at an advanced stage with the two brands expected to be retained should a merger go ahead. Sainsbury’s and Asda are the second and third largest supermarkets in the UK behind Tesco.

The new combined group would comprise around 2,800 stores and would represent over 31.0% of the UK grocery market – which would be more than that current market leader Tesco.

Asda is the UK division of Walmart and in a statement Sainsbury’s has confirmed that it and Walmart Inc. are in advanced discussions regarding a combination of the Sainsbury’s and Asda businesses. The deal is reported to be worth £10bn and a further announcement is expected during Monday morning.

Publisher of Food Management Today Graham Yandell said: “This is a surprise announcement and, if agreed, and allowed to go ahead by the Competition and Markets Authority, it will be a major game changer for the market. It could have a significant impact on the supply chain in due course and ongoing manufacturing contracts. Not only would this new business take on Tesco head on, but change the economic dynamic of the sector too, which in more recent years has seen a shift towards the discounters such as Aldi and Lidl. These are businesses with ambitious plans for UK expansion which has seen them gaining market share at the expense of the bigger players.”

Asda and Sainsbury’s are in merger talks (Photo taken inside an Asda store).

If the merger goes ahead, it will be the biggest shake up in UK grocery retailing sector since Morrisons took over Safeway in 2004. it is well known that the main supermarket groups have been looking for new sources of growth because there’s not much around via their own aisles. This latest news reflects speculation that Asda has been looking for a new opportunity to improve growth and that this may be a solution. However, industry analysts suggest some stores could close if the merger progresses, taking total combined market share down to around 30% or less.

Sainsbury acquired Argos and Habitat in 2016 for £1.4bn, whilst In 2017 Tesco merged with the UK’s largest food wholesaler Booker. Many in the industry point to these developments as a guide to how the Competition and Markets Authority will possibly react at a time when there is a growing acceptance that there will be a restructuring in the multiple retail sector.

Comments in opposition to the proposed merger have been made quickly by both Labour and Liberal Democrat spokespersons, with Lib Dem leader and former business secretary Vince Cable saying there must be an immediate investigation by the Competition and Markets Authority. He added that the potential merger threatened the creation of even more concentrated local monopolies. Shadow business secretary for Labour Rebecca Long-Bailey was also less than enthusiastic, adding: “It will be British shoppers that suffer from rising prices.”