Will Asda and Sainsbury's become more than just housemates?

Friends: Joey and Rachel hooked up after living together
Friends: Joey and Rachel hooked up after living together

The UK's second and third biggest supermarkets have been adamant they will pursue a "dual brand strategy" when their planned merger completes - but is it inevitable that familiarity will lead to deeper union?

After news broke on Saturday that Sainsbury’s and Asda were planning to merge, it didn’t take long for speculation to begin on what a new, combined supermarket chain might call itself.

— Bill Cubby (@CubbyCubowski) April 30, 2018

Such talk was quickly slapped down, however, when official announcements made clear that not only would both brands would be retained, but they would stay as operationally separate businesses in most respects.

It is an approach that makes a lot of sense: changing an Asda store to Sainsbury’s, especially in an area with lots of price-conscious consumers, could risk pushing away shoppers that perceive Sainsbury’s as pricey – and the reverse is true for more well-heeled customer that see Asda as questionable quality.

In both cases, the perceptions of many shoppers may be distorted and unfair, but as retail commentator Steve Dresser noted at the weekend – citing Tesco’s former chief executive Terry Leahy – consumers are capable of forming all-encompassing brand perceptions on little evidence:

While both brands will be here to stay in the short to medium term, it may not be long before they start encroaching on each other’s turf – Sainsbury’s chief executive Mike Coupe yesterday acknowledged there were all sorts of ways this could plausibly happen. But would it be better to simply say goodbye to both brands and start afresh with a new name?

Is this another Dixons Carphone?

Jim Prior, global chief executive at Superunion, thinks so. "I’m sighing at the prospect of another Dixons Carphone," he said. "Look at the confusing array of brands they present to us in store and online (where, ironically, they lead with a headline that says, "we simplify").

"Spontaneously, I couldn’t tell you what I think either Sainsbury’s or Asda stand for as brands, at least not in concise and compelling terms. There’s no distinctive proposition, no unique experience, no memorable point of view or meaningful purpose that comes to mind for either."

Matt Edwards, chief executive at WCRS, agreed there were strong reasons to favour a brand, as well as corporate, merger. "It may seem that Sainsbury’s or Asda disappearing altogether would be an epochal event," he said, "but people outside the marketing industry have rather more pressing things to worry about than brand architectures.

"At some stage the question will certainly be asked as to how much efficiency would result from a singular brand approach. Two brands means doing everything twice. Two marketing teams, two sets of agencies, two employer brands, two uniforms, two tracking studies... "

Looking to other sectors proves it is perfectly possible to run multiple retail brands that sell similar products, argued brand consultant and retail watcher Kate Jones – who pointed to the H&M group, which owns & Other Stories, COS and Arket, along with its flagship chain.

In this case, Asda and Sainsbury’s have some very different characteristics, which should be ramped up, Jones said.

"Asda is known for big stores, out of town locations and everyday low prices. They should think families on a budget – this may involve a reduction in range and a focus on the wide aisle piled high with bulk pack sizes.

"Sainsbury’s positioning is decidedly more premium and it has a very well developed private label range, notedly in the burgeoning ‘free from’ category, in which the retailer has made big inroads in the absence of a strong branded category competitor."

Letting go of what already exists

Whatever personality each brand ends up with, the merged company needs to think carefully about how it manages its relationship with customers, Matthew Heath, chairman at Lida, said. Sainsbury’s recently acquired the Nectar loyalty scheme, while Asda does not have a Nectar or Clubcard-style loyalty scheme.

"Asda’s focus is on everyday low prices, and the focus on margin doesn’t allow the luxury that’s required to fund a loyalty programme," Heath said.

"Argos is now being integrated into the Nectar platform, currently on the basis of online point collection only. Is this likely for Asda? I’d say probably not, but if getting closer to your customers is important to Sainsbury’s then it will need to find new ways of achieving this with Asda, beyond the Asda credit card."

But a strategy of differentiation may just be delaying the inevitable, Katie Mackay-Sinclair, partner at Mother, suggested: "Of course Asda will look to borrow a little of Sainsbury’s quality credentials and brand reputation; and in turn, Sainsbury’s will find a new competitive edge by learning from Asda’s value proposition.

"But in the play to win against the might of the discounters and a buoyant Tesco, surely consolidation and hybridisation will come."

Ultimately, the success of the deal will depend on the "bravery" with which the brands are handled, Prior argued. "My advice for Sainsbury’s and Asda is to think long and hard about the role of the brand(s) in this merger. Don’t frame the solution around defending what already exists, think about the potential that can be unlocked.

"Real growth and leadership don't come from supply chain efficiencies and back-office savings, they come from breakthrough thinking, innovation, consumer excitement, a sense of progress, and the promise and delivery of genuinely new and better things."

Ultimately, one thing is for certain: the leadership team, and Coupe in particular, will always do what makes business sense.

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