Sainsburys & Asda Merger – Crikey, What Next For The Toy Industry?

SAINSBURYS & ASDA MERGER – CRIKEY, WHAT NEXT FOR THE TOY INDUSTRY?

After the most disruptive period in the recent history of the toy business, yet another bombshell landed in the last couple of days. That being the proposed merger between Sainsburys & Asda…Now we should be clear that this is a proposed merger at the time of writing, there is likely to be a CMA (Competition & Markets Authority) investigation and both parties need to conduct detailed due diligence on each other. So we are still some way from this proposed seismic occurrence becoming reality.

Nevertheless, this would be a massive move in terms of the UK retail landscape. For toy companies already reeling from the TRU implosion recently witnessed, further change may seem like adding fuel to the fire of a massively dynamic retail picture. However, I don’t see this having a fundamental effect on UK toy retail.

The theory goes that the combined group would have significantly more purchasing power which could adversely affect pricing/margin from a supplier side perspective. I’m not entirely convinced by this argument though from a toy industry perspective, as the two companies are not huge supporters of the toy industry in terms of breadth of range/space committment. Furthermore, both are already known for aggressive pricing albeit executed in a different way (Asda with the ongoing price rollbacks and Sainsburys with a 50% off toy promotion in the build up to Christmas). A combined Sasda or Asbury’s (!) group may manage to squeeze an extra point or two from suppliers, but it seems unlikely that will be paradigm shifting/ruinous for the toy category.

Another consideration is the need for deal value for both sets of shareholders – this suggests it is unlikely that we will see the merging or disappearance of either of the brands. Rather it seems most likely that both will survive as separate brands, with a different approach/strategy to justify an ongoing place in the market. Therefore it also seems unlikely that consumer choice will be that adversely affected.

Finally, the UK media has been excitedly ‘bigging up’ Sainsburys role in this deal & how they are the key player…but there is another long term possibility – with Walmart taking a stake in the new to be merged group, they will effectively be broadening their tentacles in the UK – could we eventually see a takeover/buyout of the combined group by Walmart? At this stage this would be merely speculation, but that kind of move would certainly set the cat among the pigeons!

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world. Services include Sourcing/factory finding especially in India & other ‘new’ manufacturing economies, toy business consultancy and product representation.