Walmart’s Asda unit on Friday announced its plans to acquire Netto Foodstores from Denmark’s Dansk Supermarkets for a whooping £778 million as part of its expansion plans in the UK. This investment acquisition of Netto’s UK outlets will mark the first major challenge for its new Chief Executive, Andy Clarke, who took over from Andy Bond this month.
Andy Bond, the new chairman of the Asda group, announced the growth plans of the group last month that detailed the company’s planned expansion with the supermarket chain announcing the opening of 250 new stores in five years as part of its bid to outdo Tesco and become the UK’s largest non-food retailer and the second only to J Sainsbury in food retailing.
This new investment deal achieves the company’s latter objective with Asda closely following Sainsbury in a quest to boost its position as the UK’s second biggest grocer. Additionally, pundits expect that, by scaling up their supermarket chain at a stroke, the company will realize an important milestone in its future growth plans even though this will not be a definite game-changer. However, it does signal that the company will attain objectives but what it plans to do in non-food over time remains unknown. However, pundits believe the company will have to make an acquisition to get to number two or better yet, one.
Asda’s non-food sales went up to £6 billion when compared to Tesco’s £9.5 billion, a clear manifestation of Asda’s desperation for scale. Asda had paid £778 million for a chain that on average could only manage £750 million of sales in the UK and a profit of £7 million.
Somerfield was also acquired by the Co-op in 2008 for about £1.57 billion when its sales were running to around £4 billion. Jonathan Pritchard, Oriel Securities analyst, said that Asda’s move made general retailer stocks more attractive.
From the outset, it appears that the new Asda CEO will shake the company up on both sides of the retail divide with this investment deal expected to receive regulatory approval by late summer. The company intends to go ahead of J Sainsbury with the deal expected to take its share of the grocery market to 17.6% in one hit when compared to Sainsbury’s 16.1%.
According to the Rural Shops Alliance (RSA), this proposed takeover investment of Netto by Asda poses an “immediate challenge” to the government’s commitment to competition in the grocery industry as smaller stores are in danger of being phased out.
May 31, 2010.