Following the Competition and Markets Authority’s recent decision to block the proposed merger between two of the country's largest supermarkets, Sainsbury's and Asda, the question now is how will the big supermarkets respond to the pressures which prompted such a bid in the first place?

The merger, which if successful would have given the new company approximately 29 per cent of market share in the UK grocery retail business, was driven chiefly by the risks posed to underlying performance and profitability by the increase in online shopping and the continued rise of so-called discount retailers, especially Lidl and Aldi.

Lidl and Aldi operate according to a different business model based on smaller stores located close to where people live and work, and successfully source goods more effectively from different supply chains.

The importance of efficient supply chains was highlighted by last year’s strategic alliance between Tesco and Carrefour, and by Morrisons’ decision to enter into an agreement with Ocado in 2013, with the specific objective of using Ocado’s operating system to reduce its supply chain costs. Both Tesco and Morrisons have seen increases in market share and overall performance.

Changes to business models and store formats adopted by Sainsbury’s and Asda’s principal competitors indicate the likely future direction of the UK’s grocery market, which is seeing a consistent trend of shoppers buying fewer items at time and increasing the number of shopping trips.

We wait to see how Sainsbury’s and Asda will react after the CMA concluded joining forces would present a threat to consumer choice and an upward pressure on prices (between them the newly merged company and Tesco would have controlled some 56 per cent of the market). 

We expect to see an impact on their property requirements as they explore how new stores and ways of doing business can help them recover market share.

Further information

Contact Savills Planning