Waiting for Wal-Mart’s next move
World’s biggest retailer must consider non-food acquisition
September 27 2003
With Morrisons the only supermarket operator cleared to bid for Safeway, the City has started to speculate on what Wal-Mart’s next move will be in its drive for UK expansion.
When it bought Asda in 1999, the world’s biggest retailer said it never entered a new market to be anything but the number one retailer.
Wal-Mart’s entry into the UK has undoubtedly been a success. This summer saw Asda overtake Sainsbury’s to move into second place in terms of market share of the supermarket sector. However, Asda is still a long way behind Tesco, which has around a 27 per cent of grocery market share compared to around 17 per cent for Asda.
Like Tesco and Sainsbury’s, Asda will be allowed to bid for some of of the 53 stores Morrisons must sell to comply with the Competition Commission recommendations. Twelve of these stores are ruled to have no crossover with existing Asda stores, Wal-Mart could also now target a smaller grocery player such as Somerfield or Iceland owner Big Food Group, both of which are clear takeover possibilities. Howwver, such a move would undoubtedly trigger further attention from the competition authorities.
The acquisition of either would not put Asda ahead of Tesco in market share, and with Tesco having been cleared to buy the T&S Stores convenience business at the start of this year, it would be harder for the competition authorities to justify blocking a move by Wal-Mart.
Like Tesco, much of Asda’s recent growth has come through development of non-food sales, particularly clothes, and trials of two stores devoted solely to Asda’s George clothing brand are currently underway.
Retailers such as Woolworths or Matalan provide Wal-Mart with possibilities for non-food expansion. In the US, the health & beauty and pharmacy markets have also proven successful for Wal-Mart, making Boots another potential candidate.
The possibility of a legal challenge by Asda to the Competition Commission ruling has appeared to recede. An Asda spokesman told news agency Reuters: “It is not something we’re planning at the moment.”
If Wal-Mart does has another takeover move waiting in the wings, it may have decided that challenging the UK competition authorities in the courts would be an unsound move strategically. You don’t get to be the world’s largest retailer without looking at the bigger picture.
