The news that Sainsbury’s plans to merge with Asda has come as quite a shock. It is a striking example of two major retailers taking a very bold move to address the ongoing challenges of an intensely competitive industry. Contributor Simon Hayward, author and CEO of leadership consultancy – Cirrus.
If the merger goes ahead, the combined group will be led by Sainsbury’s chief executive Mike Coupe, who has said that this is a “transformational opportunity” to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future.” This statement addresses the major challenges of competition and customer focus. Coupe has also recognised the need to create a business that is “more dynamic, more adaptable, more resilient” – better able to respond to its ever-changing, fast-moving marketplace.
Combining two well-established retailers will be a challenge. Coupe and the new leadership team will need to manage the paradox of agile leadership: creating a new, connected organisation while at the same time disrupting that new organisation sufficiently to reinvent it in a way that can compete on a sustainable basis with competitors. What does this require? A major shift towards agile ways of working, with greater emphasis on simplicity, shorter planning cycles, ruthless prioritisation focused on what customers want, and embracing digital opportunities.
Couple has also said that the two supermarkets are “the best possible fit” and there is a widespread view from industry analysts that the two have complementary strengths on which they could collaborate. So, for example Sainsbury’s is stronger in e-commerce and convenience stores, Asda is more competitive on pricing and has a stronger clothing offer in George.
The supermarket industry is notoriously cut-throat and has undergone great change in recent years as market leader Tesco has lost market share while discounters Aldi and Lidl have increased theirs. Industry disruption has become the norm, but in supermarket retailing that disruption has been coming from discounters or from Amazon’s recent foray into the grocery market. We are less used to disruption from large, long-established corporates.
If the merger goes ahead, can Sainsbury’s and Asda merge and become both bigger and more agile? It will be a monumental challenge, and will require a very strong leadership community in the new business, willing to embrace new ways of thinking, leading and working. The alternative is that the merger ends up being a defensive reaction to new market entrants with a different business model, which may delay but not stop their ongoing disruption of the sector.