The supermarket retail sector in UK has started as a fundamental part of the retail industry, that leading the food retailing (Shitti et all, 2006, P.94). The supermarket sector has an essential influence on the retail industry. The UK supermarket sector is led by few companies, Tesco, ASDA, Sainsbury, Safeway, Morrison and Co-op Group that control over 50% of grocery retail. A shift in consumer lifestyle has changed retail industry to offer a diversity of services. (Agriculture and Agri-Food Canada))

The UK grocery has been classified with a wide range of formats including Hypermarkets, Superstores, Discounters and Convenience stores. Generally, food retailers were developed from a highly simple source then they established a sound successful business, interspersed by failure (Williamson et al. 2004).

The UK competing supermarkets in the retail industry are;

1. Morrison

The supermarket was established in 1899 by William Morrison. In 1962, he purchased the Victoria Supermarket out of town. The growth of Morrison went steadily to increase their stores from 45 in 1990 to 81 in 1996 located in towns that close to main roads. It has been regarded as a leader in Sale-Based Ordering (SBO). Customers consider Morison chains as price competitive. Morrison is considered as the pioneer in feature of Market Street

2. Tesco

It is classified as the market leader in grocery retailing that reached 545 outlets by 1996 guided by formula ‘pile it high, sell it cheap’. Tesco had two SBO systems, one for fresh food and the other for longer life products.

3. J Sainsbury

The growth of J Sainsbury was through acquisition or joint venture. The major weakness on Sainsbury strategy was its slow response to changing market condition

4. Safeway

The Safeway stores was established in 1977. The turnover of the Safeway during the period 1991 to 1996 was only 35%. The company adopted the concept of ‘shop and go’ which proved to be highly successful.

5. ASDA

There are many factors that delayed the development of Asda, mainly their policy to expand by acquisition and the long term debt gearing.

6. Kwik Save

Considered as the most successful ‘discounters’ in the retail industry.

7. Somerfield

Originally was Gateway, a chain of small to medium sized groceries. Later was acquired by Isoscele which experienced debt load.

8. Waitrose

It is a private cooperative its shareholders are the employees

The motive for merger and acquisition is the diversification to reduce risks and not to have ‘eggs in one basket’. Another motive is to improve the financial performance, lower cost ‘economic of scale’ and eliminate competition (Peavler, R. nd). Let’s examine the financial performance of the eight supermarkets using their Net Assets in 1996, Net Assets Growth (5 years), Sales/Stock ratio and their Operating Profit in 1996 as reflected in Table 1.1

Table 1.1 | Morrison | Tesco | J Sainsbury | Safeway | Asda | Kwiksave | Somerfield | Waitrose | Net Assets 1996 (£m) | 545.6 | 3594 | 3543 | 1939.2 | 1657.7 | 435.5 | 722.2 | 952 | Net Assets Growth (%) | 73.8 | 48.8 | 7 (2 years) | 34 | 5.24 | 29.9 | (-40) | 10 (2 years) | Sales/Stock ratio (times per year) | 25.4 | 26.2 | 17.25 | 22.6 | 23.3 | 18.17 | 19.3 | 11.6 | Operating Profit (£m) in 1996 | 126.19 | 724 | 764 | 417.5 | 316.7 | 71.5 | 100.5 | |

The data in table 1.1 has been illustrated by the graphs in Figure 1.1, Figure 1.2,Figure 1.3 and Figure 1.4

Figure 1.1

Figure 1.21

Figure 1.3

Figure 1.4

There is clear evidence that the UK supermarket sector is increasingly dominated by a few firms, led by Tesco, Sainsbury and ASDA.

The merge between Somerfield and Kwik Save is to save the two supermarkets. The operating profit for both supermarkets can be considered as one of the lowest in the supermarket sector in UK in 1996. Moreover, Somerfield was experiencing debt load and its assets net growth is decreasing. The pre tax profit of Kwik is falling , and the business is struggling in the competitive market while the assets net growth for Somerfield is falling. By this merge, they will raise the market share to 7% (MarketWatch 2006)

Archie Norman, CEO ASDA, in his sharp advice to the UK supermarket chiefs facing Asda's takeover by the Wal-Mart: ‘don't even think of competing on price. 'The razor-sharp strategist who rescued Asda from more than £700m of debt eight years ago, transformed it to chase Tesco and Sainsbury and is now overseeing its £6.7bn acquisition by the world's biggest retailer, warns competitors that they cannot win a price war against Wal-Mart’ (Kennedy, C 1999). By this takeover, Asda improved its competition position in UK markets and gained more customers. The Asda market share has increased after taken over by Wal-Mart.

The merge between Morrison, the fifth largest supermarket chain with 119 stores and Safeway, the fourth largest supermarket chain with 479 stores will lessen competition. The net assets of Morrison added to the net assets of Safeway will exceed that net assets of Tesco and J Sainsbury. Also, the net assets growth of both Morrison and Safeway will exceed the other six supermarkets combined.

References: * Agriculture and Agri-Food Canada [Online]. Available from )http://www.ats.agr.gc.ca/eur/5735-eng.htm (Accessed: 24 June 2013)

* Kennedy, C (1999), 'Determined of Tunbridge Wells. (cover story)', Director (00123242), 53, 4, p. 59, Business Source Complete, EBSCOhost, [Online]. Available from: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/Citations/FullTextLinkClick?sid=c6ba3471-cdef-41a3-b8cd-cae91a54a78d@sessionmgr113&vid=8&id=htmlFullText (Accessed: 26 June 2013)

* Peavler, R. , (nd)‘Why Do Companies Merge? Mergers and Acquisitions Explained’ About.com Business Finance [Online]. Available from: http://bizfinance.about.com/od/Basic-Financial-Management/f/why-do-companies-merge-mergers-and-acquisitions-explained.htm (Accessed: 25 June 2013)

* Shittu, O & Omar O (2006) ‘Retail Employment: An Evaluation of Supermarket Part-time Work in London, UK’, Journal of American Academy of Business, Vol. 9 Issue 2, p.94 [Online]. Available from: http://content.ebscohost.com.ezproxy.liv.ac.uk/ContentServer.asp?T=P&P=AN&K=22994934&S=R&D=bth&EbscoContent=dGJyMNLr40SeqLM4yOvsOLCmr0uep7BSsKu4S7GWxWXS&ContentCustomer=dGJyMOzprkmvqLJPuePfgeyx44Dt6fIA (Accessed: 24 June 2013)

* ‘Somerfield: private equity ownership provides no boon for Kwik Save' 2006, Marketwatch: Food, 5, 3, pp. 10-11, Business Source Complete, EBSCOhost, [Online]. Available from: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/viewarticle?data=dGJyMPPp44rp2%2fdV0%2bnjisfk5Ie45PFIr6ewTLWk63nn5Kx94um%2bTq2otEewpq9Lnqu4S66wsk%2bet8s%2b8ujfhvHX4Yzn5eyB4rOvTbGstk6vqLRPpOLfhuWz44ak2uBV4OrmPvLX5VW%2fxKR57LOwSLCpsEy1qKR%2b7ejrefKz5I3q4vJ99uoA&hid=4 (Accessed: 25 June 2013) * Williamson, D et al. (2004), Strategic Management And Business Analysis. 1st ed. Routledge, Taylor & Francis Group, London and New York