asda

The Sainsbury’s and Asda merger might have sent shockwaves through the industry, but given the current retail environment it is not entirely surprising.

Against a backdrop of increased competition in the grocery sector, the rapid growth and popularity of the discounters, disruptive technology and changing consumer habits, supermarket margins have been under pressure for some time.

And with the UK’s four main players – Tesco, Sainsbury’s, Asda and Morrison’s – all fighting for valuable market share, consolidation in the UK supermarket sector feels inevitable.

Up until this week, Tesco led the market with a 28% share, according to Kantar WorldPanel data; however, a combined Sainsbury’s and Asda would control around 31% of the supermarket sector making it he biggest supermarket group in the UK.

From a scale perspective, the deal undoubtedly makes a lot of sense – even though it will require approval from the Competition and Markets Authority, which is likely to force Sainsbury’s and Asda to sell a number of their stores so they don’t have too much power over the grocery market in local areas.

Analysis by GlobalData suggests it will have to dispose of at least 75 stores to quash concerns, although Sainsbury’s is adamant the merger could offer a good deal for consumers with the possibly for a 10% reduction in prices as well investment in formats, channels and new tech.

The branding conundrum

But how this will work from a branding perspective raises a number of questions – especially in grocery where it brings together two supermarkets that stand for very different things.

Sainsbury’s has a focus on values and is perceived as being better quality but more expensive. Asda, on the other hand, has built its brand on price and a value positioning.

According to YouGov BrandIndex, Sainsbury’s has the stronger brand. Its index ranking (a measure of a range of metrics including quality, value and reputation) is 31.2, putting it second behind just Marks & Spencer in a list of 26 supermarket brands. It comes top for satisfaction with a score of 39.4 and in the top three for impression, quality, reputation and recommend.

Consumers have poorer perceptions of the Asda brand. Its index score of 17 is only enough to put it in eighth place in the supermarket rankings, while on reputation it comes in 11th with a score of 4.2 and on impression it ranks ninth on 20.5.

Sainsburys versus Asda brands

But the clearest indication of the difference between the brands comes in terms of quality and value. On quality, Asda ranks 10th with a score of just 12.1, while Sainsbury’s is third with a score of 43.4. On value, however, the places are reversed; Asda comes third in terms of value with a score of 23.1, while Sainsbury’s is seventh (its worst position) with a score of 9.4.

The figures suggest there…