Where now for supermarkets?

So what happens now? One thing seems certain, there will be no return to the sleepy complacency which had begun to settle over the grocery multiples sector prior to last weekend’s revelations about Asda and Safeway’s clandestine deal-making.

For a start, the talks have blown the gaffe on the vaunted role of marketing in long-term grocery multiple strategy. The deal was couched in terms of concentration of scale: Safeway’s geographical power in the South, Asda’s in the North, could be combined to create a new force in the market, bigger than Sainsbury’s but slightly smaller than Tesco. And of course, there were plenty of cost efficiencies to be extracted: up to 250m of them, mainly in buying, and distribution (though marketing and advertising would also have featured).

Where the deal was least satisfactory was on the issue of positioning. How the two companies thought they going to combine seamlessly the slightly downmarket, cheeky-chappy, cut-price image of Asda with the Volvo-like, middle-class solidity of Safeway remains a mystery.

The fact is, a merger would have been messy from a marketing point of view. There seems evidence that Asda would have come out on top (denied of course by Safeway); certainly the 150m or so savings to have been passed on to consumers would play better to Asda’s image than Safeway’s. The aftermath of the unconsummated deal therefore leaves Safeway’s marketing strategy in an awkward spot – the suggestion being that it is surplus to requirements if an interesting enough partner comes forward, which happens to have a contrary positioning.

The City is now betting – Safeway’s inflated share price being the evidence – that such partners will indeed emerge, possibly from Europe or the US. But there is little need to confine such interest to Safeway. Morrisons, Somerfield, Iceland and Kwik-Save (which itself is engaged in a delicate repositioning ) seem more tempting morsels for those who need growth by acquisition but greet the probability of a year-long referral to the Monopolies & Mergers Commission with an understandable lack of enthusiasm.

Earnings growth there will have to be, and the implicit admission of Asda and Safeway is that it can no longer be generated by organic means or through added value. Not, at least, in the quantity that shareholders would find meaningful.

At all events, the stage seems set for some fairly brutal consolidation which will ride roughshod over the carefully prepared positions of marketing strategy. Let’s hope the consumer proves understanding.

News Analysis, page 23

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here