Safeway, Asda quick to dispel takeover rumours

Related tags Asda

A rumoured takeover bid for beleaguered food retailer Safeway by
larger rival Asda has been dismissed as speculation by both chains.
But Safeway's problems continue and an eventual buy out cannot be
ruled out entirely.

Rumours in the British press have linked two of the country's leading supermarket chains, Asda and Safeway. The Daily Mail reported late last week that Wal Mart, the US owners of Asda and the world's largest food retail group, was preparing a bid for Safeway, rumoured to be around £2.8 billion (€4.5bn).

With Asda and Safeway ranking third and fourth respectively in the UK supermarket sector, any takeover would be have to be approved by the competition authorities, and the paper said that Asda had already begun sounding out the Office of Fair Trading to see whether a merger would be allowed. An EU investigation would also be likely.

While both companies are among the leading food retailers in the UK, the OFT would not necessarily rule against a merger. Asda's stores have traditionally been large out-of-town outlets selling a wide variety of food and non-food items, while Safeway has taken the more traditional city-centre, food only root for the majority of its outlets. That said, there would be many places where the two companies' business overlapped significantly, and the impact on jobs could be substantial.

The merged group would have an estimated 25 per cent share of the UK market, the same as current market leader Tesco.

Both chains dismissed the rumours as speculation, with Safeway adding that "it has had no approaches from, and is not in discussions with, any third party regarding a possible offer for the company"​.

Rumours of this sort have circulated for several years, mainly because Safeway has been struggling to keep up with the pace of development in the UK market. Tesco continues to go from strength to strength after taking over as the country's leading supermarket chain, while Asda's takeover by Wal Mart came after several years of recovery led by a dynamic management team and a focus on consistently low prices. Sainsbury, which too has struggled since being overtaken by Tesco, at least has the financial clout and the upmarket image to maintain its number two position.

Developments such as loyalty card schemes which have worked so well at driving up sales at other chains - even if they have not necessarily kept customers 100 per cent loyal - have failed to be implemented successfully by Safeway. Its ABC loyalty scheme, which started around the same time as those run by Tesco and Sainsbury, was scrapped several years ago as the chain failed to reap the benefits and keep the costs down.

Furthermore, a continued process of overhauling stores has failed to make an impact, and Safeway's focus on low-cost own label products make it look decidedly downmarket compared to its three chief rivals.

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