J Sainsbury plc

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.

Scope

  • 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.

Reasons to buy

Why does Sainsbury's want to acquire Argos?

What impact would a combined Sainsbury's and Argos have on the UK retail industry?

Companies mentioned

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Table of Contents

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 ...

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

Ask the analyst

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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 2015/2016

List of Figures

Figure 1: Market share of food retail players in the UK for the 12 weeks ending November 8, 2015

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

List of Tables

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List of Figures

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