J Sainsbury plc: Does the Home Retail Group Acquisition Ensure its Future?

  • ID: 3642826
  • Company Profile
  • 26 pages
  • MarketLine
  • J Sainsbury plc
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Introduction

Following a prolonged attempt, one of the UK's largest supermarket chains J Sainsbury has provisionally had a GBP1.3bn takeover of Home Retail Group accepted. This case study explores Sainsbury's motivations in the acquisition, and what the potential benefits and pitfalls of the move could be.

Features and benefits

- Analyzing the current state of the UK food retail market and exploring the rationale behind the deal for Sainsbury.
- Exploring Home Retail's recent performance against market disruption and why the company would be receptive to an offer from Sainsbury's.
- Evaluating the value of the merger with discussion of imminent market disruption to both companies and the impact it will have on the combined entity.

Highlights

- Sainsbury's is currently subject to intense price competition and deflationary pressures. The supermarket is seeking to diversify its interests to insulate itself from a market where margins are squeezed. It has already taken steps to do this, with an expansion of its financial services product range and assuming complete control of it.

- Home Retail Group conversely has seen its performance deteriorate, forcing sales of its other interests (Habitat and Home Base) in order to make general merchandise retailer Argos sustainable following a period of investment to increase online capacity.

- The acquisition will create one of the UK's largest general merchandise retailers, and make Sainsbury's less reliant on the groceries sector at a time of intense competition. The new digital infrastructure, which places an emphasis on rapid delivery, and could have positive implications for the online grocery business.

Your key questions answered

- Why does Sainsbury's want to acquire Argos?
- What impact would a combined Sainsbury's and Argos have on the UK retail industry?
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Overview
Catalyst
Summary
Sainsbury wants to diversify its offering
Sainsbury's is one of the UK's largest food retailers
The UK food retail market is becoming more competitive
Sainsbury's has positioned itself well so far
Cutting costs in food while protecting strong brand
Convenience sector continues to grow
Strong online growth continues
Sainsbury's is further expanding its non-food offering
Sainsbury's is further expanding into financial services
Home Retail Group has struggled
HRG's portfolio has continually eroded
Homebase stagnating as HRG tries to reduce costs
Sainsbury's was reluctant to take Homebase in a merger
Argos invested heavily in infrastructure
Digital transformation a qualified success
2016 may have seen Argos overextend itself
HRG acquisition is preparing for the future
Sainsbury's will become one of the UK's biggest retailers
Both companies will benefit from diversification
Diversification gives edge against Sainsbury's discounter rivals
Argos gets respite from online competition
Digital infrastructure improves customer convenience
Argos distribution network changes could be applied to grocery section
Opportunities for better use of space in Sainsbury's stores
Argos leases are expiring soon, paving opportunity for rationalization
Multichannel strategy may give edge against Amazon
John Lewis offers hope for UK retail survival
Argos eBay deal will drive further footfall to Sainsbury's stores
HRG distracts as amazon eyes food retail
Food retail remains highly competitive
Aldi monitoring other distribution channels
Amazon could disrupt both Argos and food retail
Morrisons deal could represent a serious challenge to incumbents
Sainsbury's still has some room with Prime Pantry
Sainsbury's ability to price cut diluted by takeover funding
HRG and Sainsbury's target different demographics
Late Steinhoff offer may derail bid
Sainsbury's prepared to make a hostile bid to takeover HRG
Sainsbury's investors are already nervous about HRG bid
Conclusions
Deal seems initially absurd, but on closer inspection vital
Appendix
Definitions
Sources
Further Reading
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About
Disclaimer

List of Tables
Table 1: J Sainsbury plc, key financials,2011-2015 ($m)
Table 2: Home Retail Group, key financials,2011-2015 ($m)
Table 3: Big 4 and discounters expansion plans for 2015/

List of Figures
Figure 1: Market share of food retail players in the UK for the 12 weeks ending November 8,
Figure 2: UK food retail market value 2010-2019 (2015 onwards forecast), $bn
Figure 3: Home Retail Group and its brand logos
Figure 4: UK online retail market value 2010-2019 (2015 onwards forecast), ($bn)
Figure 5: Sainsbury's stores Argos concession concept art
Figure 6: Promotional material for Amazon Prime Pantry
Note: Product cover images may vary from those shown
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