MERGERS: A CRITICAL ANALYSIS OF THE CMA’S REJECTION OF THE PROPOSED SAINSBURY-ASDA MERGER AND FUTURE DIRECTIONS FOR THE RETAIL INDUSTRY TO COLLABORATE. EXECUTIVE SUMMARY The report assessed the regulatory framework of mergers within the UK retail sector. Asda and Sainsbury, two of the largest retailers in the UK, presented a proposal to the Capital Markets Authority (CMA) of their intention to merge. The two companies outlined the benefits that the collaboration would bring to the UK environment, primarily the reduction of prices of commodities. However, the CMA rejected the proposal after making a purely economic assessment of the merger, and coming to the conclusion that it would increase prices, despite the undertaking of the two companies to reduce them. The objectives of the report were to assess the external and internal environment of the retail sector using the Political, Economic, Social, Technological, Environmental and Legal (PESTEL), Strengths, Weaknesses, Opportunities and Threats (SWOT) and Critical Success Factor (CSF) frameworks. The research for the report was conducted through a qualitative analysis of secondary sources of data. The PESTEL, SWOT and CSF frameworks, which were used to assess the merger between Sainsbury and Asda showed that the existing theoretical framework for business studies is based on a holistic approach that addresses the legal, political, economic, social, environmental and technological outcomes. The CSF framework incorporates an analysis of the internal environment of the sector by examining the strategic focus of the organisation and the people who are affected by its decisions. The report ultimately presents recommendations for the CEOs of Sainsbury and Asda on the strategies that should be adopted to enhance collaboration within the retail market. The recommendations include the inclusion of ethical frameworks that increase competition, promotion of stakeholder involvement in decision-making and the use of CSF strategies to promote the growth of the retail sector. Table of Contents EXECUTIVE SUMMARY 2 1.0 INTRODUCTION 5 1.1 Report Aim and Objectives 6 1.1.1 Aim 6 1.1.1 Objectives 6 2.0 EMPIRICAL RESEARCH 7 2.1 An Overview of Sainsbury and Asda 7 2.2 External environment of the Retail Sector 8 2.2.1 Political Environment 9 2.2.2 Economic Environment 10 2.2.3 Social Environment 10 2.2.4 Technological Environment 11 2.2.5 Environmental Issues in the UK Retail Market 12 2.2.6 Legal Environment 12 2.2.7 SWOT Analysis 13 2.3 Analysis of the Internal Environment of Sainsbury and Asda Using the CSF Conceptual Framework 14 2.3.1 Strategic Focus 14 2.3.2 Marketing 15 2.3.3 Operations 16 2.3.4 Finances 16 2.3.5 People 17 2.4 Summary 17 3.0 METHOD OF INQUIRY 18 4.0 DISCUSSION 19 4.1 An Analysis of Mergers Based on the PESTEL, SWOT and CSF Frameworks 19 4.2 A Holistic Model of Assessing Collaboration Within the Retail Sector 22 5.0 CONCLUSION 23 5.1 Recommendations to the CEOs of Asda and Sainsbury 24 References 26 Appendices 31 1.0 INTRODUCTION Asda Group Limited (Asda) and J Sainsbury PLC (Sainsbury) announced their intention of merging on 30th April 2018 (GOV.UK, 2019). The organisations are two of the four retailers that are part of an “oligopoly that controls 90% of the UK market” (Chakraborty et al., 2014, p. 24). The two companies presented their proposal for a merger to the Competition and Markets Authority (CMA), which is mandated to determine whether such action would be in line with the Enterprise Act, 2002 (GOV.UK, 2019). CMA has to be satisfied that a proposed merger will not lessen competition within the UK market, for it to approve two companies to consolidate. In the case of Asda and Sainsbury, the CMA conducted hearings where it gathered information from the public on their perceptions of the intended merger. The CMA ultimately based its rejection for the proposed merger of Asda and Sainsbury on the basis that the merger would lead to a price increase of commodities within the sector, hence affecting the competitiveness within the market. Moreover, a merger of the companies would have made them the largest private company in the UK, which would have changed the competitiveness of small businesses in the retail industry. In its decision, CMA specifically addressed its mandate in the determination of whether mergers would detrimentally affect the UK market (GOV.UK, 2019). In particular, the CMA stated that its decision could not be based on factors such as public interest or an analysis of how the merger would affect producers of the goods sold in retail stores. Conversely, the CMA postulated that it was purely guided by a review of the economic significance of a merger, by analysing the possible effect on pricing (GOV.UK, 2019). However, the position failed to address other ethical issues that would arise from the merger, including the ethical behaviour of the organisations. However, the assessment criteria for determining the impact of a merger on competitiveness should be broadened to address indirect mechanisms through which collaborations can detrimentally affect other companies within a sector. For instance, Sainsbury argued that the merger would have resulted in a decrease in prices for its consumers, which would improve competition within the retail sector. The company stated that it would reduce prices of its own accord. Consequently, there is a need for companies intending to collaborate within the retail sector to recognise the emerging issues on ethical practice, public interest and the impact to all stakeholders to gain the approval of the CMA. The paper will, therefore, entail an analysis of the internal and external environment of the proposed merger, a review of existing literature on the subject and recommendations for a broader framework for assessing the impact of a merger on competition in the retail sector. 1.1 Report Aim and Objectives 1.1.1 Aim The report aims to critically examine the reasons for the CMA’s rejection of the proposed Sainsbury-Asda merger, due to the potential impact on competition within the UK retail market; and offer guidelines for future collaboration within the sector. 1.1.1 Objectives The objectives of the report are: To analyse the internal and external environment of the retail industry in the United Kingdom. To conduct a critical analysis of the reasons for the CMA’s rejection of the proposed Sainsbury-Asda Merger.To develop recommendations on the need for the development of a broader framework to assess the impact of mergers on competition within the UK retail industry. 2.0 EMPIRICAL RESEARCH 2.1 An Overview of Sainsbury and Asda Sainsbury and Asda are two of the largest retailers in the UK. A comparative analysis of the two companies, including their values, vision, financial statements, and market position is shown in table 1 below: Table 1 Comparative Assessment of Sainsbury and Asda SainsburyAsdaYear of incorporation18691949Parent CompaniesSainsbury is not a subsidiary of another company.Wholly owned subsidiary of Walmart.Share, market position in the UK Retail Market, and number of customers16% and second.14.8% and third; serves more than 18 million consumers each week.Financial StatementsSee appendix 1 and 2.See appendix 3 and 4.OperationsPrimarily conducted through brick and mortar stores. Small-scale e-commerce operations.Sells commodities in stores within supermarkets, depots and petrol stations. It is the dominant retailer on UK online platforms, serving 98% of UK households through its website. Uses a robust technology and the model of ‘economies of scale’ to increase its profits.VisionTo optimise customer experience, collaborate with other retailers and provide an optimum shopping experience.Providing the best quality of products to its consumers. Has won numerous awards, including Retailer of the Year in 2019.Organisational ValuesEthical leadership, strengthening relationships with all stakeholders and commitment to the attainment of the UN sustainable goals, including mitigating the impacts of climate change and eradicating poverty.Fair treatment of suppliers, providing the lowest prices in the market to customers and collaborating with other stakeholders.Instances of unethical practicesCooperation with other retailers, such as Tesco, infringes on the privacy of customers. Engagement in information sharing with other retailers to control prices of commodities.Price fixing during the 2007-2008 financial crisis. Misleading marketing campaigns, for instance, the scandal on horse meat. Offers low quality albeit more expensive products compared to Waitrose, Aldi and Lidl. From: Sainsbury’s (2020a); Asda (2020a); Guo and Wang (2019); Sainsbury’s (2020b); Kingham (2018), Pircher and Peus (2019); Fatricia (2016); Hökelekli, Lamey and Verboven (2017); 2.2 External environment of the Retail Sector The PESTEL framework has been used to analyse the external environment of Sainsbury and Asda. The tool is used in business studies to examine the environmental factors that impact a sector or organisation (Thompson and McLarney, 2017). The assessed aspects of the external environment are the political, economic, social, technological, environmental and legal frameworks within the UK. The PESTEL framework is effectively used as a precursor for a SWOT analysis that ultimately guides stakeholders to determine the viability of any course of action or the existing business model (Thompson and McLarney, 2017). 2.2.1 Political Environment The political factors that affect an organisation are caused by the state interventions that have a potential impact on the economy (Thompson and McLarney, 2017). The aspects that should be considered when analysing the political factors that affect Sainsbury and Asda should therefore include an analysis of foreign policies that impact trade and any restrictions made by the government on the sector (Thompson and McLarney, 2017). Britain’s withdrawal from the EU was caused by a myriad of factors, including the social pressure for the prioritisation of local industries and the improvement of national economic interests (Swinnen, 2018). Moreover, there is a trend towards the recognition of public interest in the making of business decisions that have an impact on the economy. The promotion of the agricultural sector within the United Kingdom was one of the reasons for the public agitation for Brexit (Jensen and Snaith, 2016). Asda and Sainsbury are both affected by the political environment in the UK. For instance, the two organisations have agricultural suppliers within the UK and overseas (Sainsbury’s, 2020) (Asda, 2020). The political environment in the UK promotes the development of the national interests, including the wellbeing of local suppliers of the two retailers. Consequently, Asda and Sainsbury are affected by public interest in the UK, including the promotion of local agricultural suppliers, by offering them competitive bids for their produce, for instance. 2.2.2 Economic Environment The UK retail market has been marked with increased consolidation of the largest food supply companies (Ferrando and Lombardi, 2019). According to Jones and Comfort (2019a), the four largest retailers in the UK are Sainsbury’s, Asda, Tesco and Morrisons. Newing, Clarke and Clarke (2015) used the disaggregated retail location model to examine consumer preference for the four largest retailers. The study showed that the demand for their products was caused by the accessibility of their stores, the use of online marketing and their attraction to high-end clientele whose expenditure is greater than low-income people. Due to the consolidation of the largest retail companies, Asda and Sainsbury faced a challenge in getting a CMA approval for the proposed merger. The two companies already wield oligopolistic control of the retail market, and the proposed merger was considered a further threat to competition within the sector. Consequently, the proposed merger was rejected by the CMA. However, Kingham (2018) argues that although Asda attracts a larger clientele that other retailers, such as Waltrose, Aldi and Lidl, the quality of its products is lower than others within the retail sector. Moreover, Kingham (2018) further argues that the products of the company are more expensive than at Lidl and Aldi. Moreover, Asda is one of the companies that was found to have engaged in price fixing during the 2007-2008 financial crisis (Hökelekli, Lamey, and Verboven, 2017). Asda has also faced controversy over misleading marketing campaigns, for instance, in the UK scandal on horse meat (Hökelekli, Lamey, and Verboven, 2017). Asda’s intention to merge with Sainsbury may have been driven by the growing competition it faces from retailers such as Coop, Aldi and Lidl (Kingman, 2018). 2.2.3 Social Environment Before the 2007-2008 financial crisis, public input on mergers was restricted to the voting rights of shareholders (Hökelekli, Lamey, and Verboven, 2017). However, the financial crisis showed the vulnerability of the public to the ethical and management decisions made by large corporations. Consequently, the public is included in the hearings of the CMA on the impact of collaborations on competition within the UK. The public, was therefore involved in the CMA hearings on the merger between Sainsbury and Asda, where numerous issues, including public interest perspectives and the impact on stakeholders, including suppliers, was addressed (Ferrando and Lombardi, 2019). Although the CMA restricted its decision to the economic effects of the merger between Sainsbury and Asda, the social perception of pricing effects, for instance, had a significance on the decision. 2.2.4 Technological Environment The technological aspect of the PESTEL paradigm is a critical factor for the analysis of the economic viability of a sector, due to the rapid changes that have impacted trade (Thompson and McLarney, 2017). Due to technological advancements, there has been a change in business models, including marketing and a global target audience. However, Pantano and Vannucci (2019) also opine that the change has affected the ability of SMEs to effectively compete with large companies, due to their limited funds. The development of online shopping has affected the UK retail industry (Pantano and Vannucci, 2019). The largest retail companies, that is Asda and Sainsbury, dominate the online platforms within the retail industry due to their access to funds that are used in the development and maintenance of e-commerce software (Nash, 2019). Small enterprises are unable to utilise the marketing strategies that are employed on social media platforms to market retail brands and increase customer loyalty (Nash, 2019). Consequently, the proposed merger of Sainsbury and Asda was rejected by the CMA as the two companies would have hindered any competition by the SMEs that already face a challenge in developing their e-commerce platforms. 2.2.5 Environmental Issues in the UK Retail Market The environment element of the PESTEL framework entails the assessment of the growing international concern over the scarcity of resources and the impact of human activity on pollution (Thompson and McLarney, 2017). Consumers also opt for brands and services that advance environmental conservation (Griffith and Nesheim, 2010). In 2019, the UK recognised that climate change was a threat to the UK food supply (Jones and Comfort, 2019b). The UK House of Commons Environmental Audit Committee advocated for the support of the four largest retailers, which include Sainsbury and Asda, to promote their resilience in the face of food shortage. Marsden, Faus and Sonnino (2019), however, state that the liberal governance of the retail sector has contributed to the vulnerabilities within the food systems in the UK. Sainsbury and Asda are affected by the decisions they make on the food suppliers, for instance, who have a direct impact on climate change. The operations of the two retailers affect the farmers’ ability to maintain production through farming, which increases the green forest cover and reduces climate change. The proposed merger of Sainsbury and Asda, which would have affected the prices paid to farmers for supplies, would have affected the number of local suppliers, thereby increasing the risk of climate change. Ultimately, a reduction in the number of farming suppliers, due to climate change, would also affect SMEs in the retail sector. 2.2.6 Legal Environment The legal element of the PESTEL framework addresses the existing laws and regulatory mechanisms that govern the operations of organisations or a sector (Thompson and McLarney, 2017). Mergers within the UK are governed by the Competition Law, whose objective is to manage any activities by business organisations, which may hinder, distort or restrict competition within any sector (Hökelekli, Lamey, and Verboven, 2017; Ferrando and Lombardi, 2019). The CMA is the regulatory authority that is tasked with the promotion of competition within the UK economy. The CMA enforces competition law on a purely economic basis, to enhance certainty for stakeholders within the UK market (Ferrando and Lombardi, 2019). The legal regime in the UK, specifically the assessment criterion of competition by the CMA led to the rejection of the proposed merger between Sainsbury and Asda. However, the law was strictly interpreted to address the economic aspects of competition. Despite the public pressure for the consideration of public interest issues such as the impact on climate change and other ethical concerns, the CMA restricted its assessments of the impact of the Sainsbury-Asda merger to economic concerns, particularly, pricing. 2.2.7 SWOT Analysis A SWOT analysis is used to examine the strengths, weaknesses, threats and opportunities to an organisation, based on the outcomes of a PESTEL analysis (Thompson and McLarney, 2017). The model is used as a method for determining the approaches that should be used to promote the economic growth of a sector. Table 2 below shows a SWOT analysis of the Sainsbury and Asda, within the UK retail sector. Table 2 SWOT Analysis of Sainsbury and Asda StrengthsWeaknessesOpportunitiesThreatsMinimal regulations by the CMA Efficient use of technology Economic stability in the UKOligopolistic control Failure to adhere to public interest Failing to adequately promote local farming industries Price fixingUse of online platforms for marketing and e-commerce Target eco-purchasers Engage in CSR strategies to develop stakeholder interests, especially suppliersCMA’s exclusive reliance on economic assessments of competition Growing nationalism in political policies to promote local industries, especially farmers Climate change The SWOT analysis in the Table 2 shows that Asda and Sainsbury should address various issues that curb competition in the retail sector, including the promotion of stakeholder interest, local industries, including suppliers’ interests and engage in community development, thereby developing a new approach to collaboration, that exceeds the economic model that currently guides the CMA. 2.3 Analysis of the Internal Environment of Sainsbury and Asda Using the CSF Conceptual Framework The critical success factor (CSF) conceptual framework has been used to analyse the internal environment within the Sainsbury and Asda. The tool presents five factors: strategic focus, marketing, operations, finances and people; which should be accomplished for the success of the retail sector. CSF in the retail sector should be analysed to achieve compliance with the Competition Law within the UK (Colla and Lapoule, 2012). 2.3.1 Strategic Focus The strategic focus of the CMA, which governs the UK retail sector is to promote the social market economy unlike in the European Union, where the goal of competition laws is to develop an “open market economy” (Ferrando and Lombardi, 2019). Ferrando and Lombardi (2019) posit that the CMA has a discretionary role in determining the factors that would affect competition within the retail sector. Both Asda and Sainsbury’s strategic focus is to provide the best prices for customers and enhance economic benefit to stakeholders, especially shareholders. However, the strategic focus adopts a purely economic approach, which hinders collaboration between two of the four largest retailers in the UK. Instead, a holistic approach that incorporates public interest perspectives, environmental impact assessments and holistic stakeholder involvement in the should be adopted in the strategic focus of Sainsbury and Asda (Ferrando and Lombardi, 2019; Wood and Alexander, 2016; Kolyva, 2019; Chakraborty, 2018). 2.3.2 Marketing The goal of companies in the private sector is to enhance market share and increase profits. However, the four largest retailers, which include Sainsbury and Asda, control 90% of the market share, thereby making any further intentions to acquire a higher stake detrimental to SMEs (Ferrando and Lombardi, 2019). Thomassen et al. (2017) state that due to the market power of the largest retailers, they can engage in unethical practices such as price manipulation or the use of their bargaining power to acquire products from farmers at meagre rates. Due to the neo-liberal approach of regulation of the financial sector in the UK, the companies may use their bargaining power to control the prices at which they acquire products, thereby indirectly affecting competition as farmers may be compelled to sell large quantities of products exclusively to the four largest retailers (Wood and Alexander, 2016). Since SMEs only control 10% of the retail sector, the proposed merger between Sainsbury and Asda would have hampered the competitiveness of the smaller organisations in the market. 2.3.3 Operations The business models adopted by Sainsbury and Asda utilise both e-commerce and brick and mortar stores, thereby enhancing their control of the dominant market share within the sector (Harris, Dall’Olmo Riley, Rettie and Hand, 2008). Harris et al. (2008) further add that the large retail stores in the UK, which include Sainsbury and Asda, exhibit increased customer loyalty on online platforms, thereby hindering the progress of smaller companies within the sector. Consequently, the proposed Sainsbury-Asda merger would have further hampered competition in the retail sector. 2.3.4 Finances The Sainsbury-Asda merger was aimed at promoting competitive pricing through the provision of flexible and modular alternatives to customers. However, the research by Jones and Comfort (2019b); and Hokelekli (2017), revealed that the four largest retailers, including Sainsbury and Asda employ the same strategies of management, which are not based on the CSF factor of enhancing competition in the market. The study showed that retailers disguised the rise in the prices of overall baskets by reducing the prices of some commodities. An exception is noted by Chakraborty et al. (2014), who show that after the Safeway/Morrison merger, consumers enjoyed a price drop of commodities. The findings are corroborated by Chakraborty (2018), whose study of the retailers showed the mechanisms adopted by the retailers to manipulate pricing within the retail sector However, an analysis by Chakraborty et al. (2015), further elaborated on the mechanisms that were used by retailers, during the financial crisis of 2007-2008, to manipulate prices. The internal environment within the retail sector is, therefore, controlled by the four largest retailers who control the sector. 2.3.5 People The stakeholders of Sainsbury and Asda include the regulatory body (CMA), the customers, management teams, employees and the suppliers of the goods sold within the industry (Ferrando and Lombardi, 2019). According to Griffith and Nesheim (2010), the consumers’ purchase intentions within the retail sector are influenced by factors such as ecolabelling, environmental concerns such as the use of recycled material in the products availed at the Sainsbury and Asda stores, and their prices. Ferrando and Lombardi (2019) also state that competition within the UK retail sector is affected by the ethical decisions made by companies in the market. For instance, if Sainsbury and Asda opted to acquire products from farmers at low prices after the merger, they would have hampered the choice of livelihood for farmers, consequently affecting the supply of products within the sector and hindering competition. 2.4 Summary Asda and Sainsbury are key players in the UK retail sector, since they control around 30% of the industry. As such, the external and internal environment of the retail sector significantly impacts the two retailers. Moreover, any decisions that they make can lead to widespread ramifications for the UK economy and SMEs within the sector. The next section of the report entails an in-depth analysis of the reasons for the rejection of the proposed merger between Sainsbury and Asda, thereby developing a framework for the determination of the best approaches for collaboration within the UK retail sector. 3.0 METHOD OF INQUIRY The research for this report was conducted through the use of secondary data sources, such as journals, and the website of the UK government and the two organisations. According to Ellram and Tate (2016), secondary data analysis entails the use of both quantitative and qualitative methods. It is conducted through the acquisition of data from other studies that were conducted for a different purpose. Moreover, Gray (2019) adds that secondary data analysis is used in the development of new theories on a subject. Since the topic of the use of a broader criterion for the assessment of the impact of mergers on competition within the retail sector is new, the method of inquiry preferred was the use of secondary data. The method provided a wide range of data related to the topic, which was useful in the fulfilment of the objectives of the report. The secondary data was preferred for this study, as it was cost effective and helped the researcher complete the study within the prescribed period. Primary data is time consuming and costly (Rahman, 2017). Conversely, the use of secondary data enabled the researcher to access concise and credible information on the retail sector and the proposed merger between Sainsbury and Asda, without having to go through large volumes of data on each aspect of the discourse. The secondary data used was derived from recognised institutional and corporate databases to enhance reliability and validity (Quinlan et al., 2019). The only peer-reviewed sources acquired from the UEL and Google Scholar database were included. The sample size, which entailed twenty secondary data sources, were determined using the inclusion/exclusion criterion. The articles included in the study were on mergers in the retail sector within the UK. The keywords that were used to data sources from the institutional databases were: “mergers”, “Sainsbury”, “Asda”, “Retail” and “competition”. The Boolean operators, “and” and “or” were used to acquire the most relevant research. Furthermore, only articles published within the last ten years were included in the research. The articles included in the research were, therefore, qualitative data from corporate websites, that were on the subject of the merger between Sainsbury and Asda, and the most relevant and up to date sources on mergers within the UK retail sector that were obtained from institutional databases such as UEL. 4.0 DISCUSSION 4.1 An Analysis of Mergers Based on the PESTEL, SWOT and CSF Frameworks A PESTEL analysis of the external environment of the retail sector in the UK shows the need for a holistic approach to the determination of the benefits of mergers to the market. Asda and Sainsbury are currently two of the largest retailers in the UK (as shown by their financial statements in appendix 1, 2, 3 and 4). The theoretical frameworks used in the assessment of business enterprises, such as PESTEL, adopt a broader method for analysing decisions that affect the economy (Thompson and McLarney, 2017). Consequently, the assessment of the proposed merger between Sainsbury and Asda should include an analysis of its impact on the political, economic, environmental, social, legal and technological aspects of the UK retail market. For the promotion of all PESTEL dimensions, the collaboration between companies in the retail sector should be examined to determine the benefit to the public interest and all stakeholders. Furthermore, the ethical concerns that would emerge from a proposed merger should be determined through the analysis of the history of the companies. For instance, both Asda and Sainsbury engaged in price manipulation after the 2007-2008 financial crisis (Hökelekli et al., 2017; Chakraborty, 2018; Chakraborty et al., 2015; Wood and Alexander, 2016). Although companies in the retail sector may provide lower prices to consumers immediately after a merger, the long-term effects of such collaboration should be determined from a historical analysis of the patterns of decision making. The analysis of the prices of commodities during inflationary times (appendix 6) can help examine the impact of a merger on competition (Chakraborty, 2018). The companies were shown to have engaged in price fixing during inflationary times, which showed their inclination to increase the cost of goods after the merger. Moreover, the customer perception of the e-commerce services of the large retail stores in the UK (Appendix 5) shows that customers prefer the online services of the Asda and Sainsbury, with smaller retailers having extremely low market shares. Consequently, an increase in prices would be detrimental to the public, who largely rely on the two companies for acquiring the products they need. The PESTEL analysis also elaborates on the legal and political methods that can be used in the assessment of the aims of the CMA in regulating competition within the UK retail sector. Sainsbury and Asda argued for the approval of the merger primarily based on their commitment to reducing the price of goods for consumers. However, the legal framework of competition law entails adherence to the ethical principles that promote a thriving economy in which other companies can conduct business. Consequently, the values and guiding principles of the organisations can be used as a mechanism for assessing the impact that collaboration within the sector would have on the competition by other retailers (Ferrando and Lombardi, 2019; Jones and Comfort, 2019a). Ethical practice within the retail sector is enhanced through ethical leadership. Both Sainsbury and Asda’s values address their commitment to the promotion of the interests of all stakeholders within the sector, including their suppliers and customers (Asda, 2020b; Sainsbury, 2020b). Jones and Comfort (2019b), however, opine that the models of decision making within the four largest companies in the UK retail sector are all misleading, and are strategically used as corporate approaches for the development of brands that appeals to customers. Nevertheless, the merger of two of the four leading retailers would severely affect consumers, whose bargaining power would be hampered. Moreover, Fatricia (2016) addresses the collaborative strategies adopted by the largest retailers, to determine the prices of commodities, thereby hampering the competitiveness of SMEs in the market. Since both Asda and Sainsbury are committed to the promotion of the interests of all stakeholders, their guiding values should have been used as of the ethical reasons for the rejection of the proposed merger. The companies are also committed to the promotion of public interest. As such, the merger, which would have resulted in a price increase, should have been declined based on a possible lack of adherence to the ethical standards they espouse. The CSF strategies also provide a theoretical basis for the adoption of a broader framework for assessing the impact of a proposed merger on competition within the UK retail sector (Colla and Lapoule, 2012). Consequently, the strategic focus of companies that opt to collaborate within the UK sector, should be to uphold the competition law within the UK, as asserted by Ferrando and Lombardi (2019). As such, market considerations should be supplemented by other factors such as an analysis of the operations of the companies in the past and the consideration of the opinions of the people who would be affected by the merger. The main challenge of the merger between Sainsbury and Asda was the impact on competition, through price fixing (as shown in Appendix 6 and 7). The data provided in Appendix 6 shows that the four largest retailers collude to fix prices of goods, due to similar patterns in the rise of prices and their reduction in various periods. Appendix 7 shows how both Sainsbury and Asda raised the price of commodities during the financial crisis, thereby evincing price manipulation. The majority stake that is held by Sainsbury and Asda in the retail sector was, therefore, used as one of the reasons for the rejection of the proposal to merge (Asda, 2020a; Sainsbury, 2020b; Pantano and Vannucci, 2019; Nash, 2019; Harris et al., 2008). The CMA’s analysis of the proposed merger of Sainsbury and Asda did not entail a consideration of the impact of technological advancements of the two organisations in hindering competition, especially from SMEs, as discussed by Harris et al. (2008). Due to their sizes, with Asda (2020a) boasting of an online platform that serves 98% of UK households, a merger between the two organisations would have significantly hampered the competition by smaller retailers. They lack the technological infrastructure to develop more dominant online platforms. Moreover, Nash (2019) also asserts that the influence of retailers on social media platforms affects customer loyalty to their brands. Nash further added that dominant retailers attract more customers due to the resources invested in marketing on social media. The merger between Sainsbury and Asda would have increased the resources that the two organisations could use in the promotion of brand loyalty, thereby curbing competition. 4.2 A Holistic Model of Assessing Collaboration Within the Retail Sector The assessment of the merger of Sainsbury and Asda failed to capture numerous facets of competition within the retail sector. The use of a purely economic model of assessment of mergers lacks an appreciation for the intricate ethical, environmental, social and political issues that led to the creation of the CMA. The assessment of public interest, for instance, entails the examination of the effects of a proposed merger on the stakeholders within the sector. Consequently, there is a need for the reassessment of the criteria for assessing collaboration of retailers within the UK market. The current approach to the assessment of mergers is inadequate, as it only addresses the economic factors that hinder competition. 5.0 CONCLUSION The proposed merger between Sainsbury and Asda revealed the current regulatory issues within the retail market in the UK, which emanate from a large focus on the economic aspects of competition. Four large retailers largely control the market, and a collaboration between Sainsbury and Asda, would have resulted in the creation of the largest private institution within the UK. Although the two companies argued that the merger would have resulted in price reduction, the CMA, in its rejection of the collaboration, stated contrariwise. The objectives of this report were to provide an analysis of the internal and external environment of the retail sector and a critical assessment of the proposed merger between Sainsbury and Asda using the PESTEL, SWOT and CSF conceptual frameworks. The research for the project was conducted through a review of the literature. Both qualitative and quantitative methods were utilised in the research. The secondary data sources were acquired through databases that provided relevant peer-reviewed sources, including journals and books. Furthermore, the websites of relevant organisations, including Sainsbury, Asda and the UK government were also used to acquire data sources for the research. The results derived from the research showed that there is a lack of a holistic approach to the assessment of the impact of collaboration within the retail market. Using PESTEL, SWOT and the CSF framework, the report addressed the major aspects that are affected by collaborative decisions within the retail market. The report addressed the ethical concerns that are not included in CMA’s approach for assessment of competition, which was primarily based on the possible economic impact on pricing. The results of the research further showed that Sainsbury and Asda did not meet the legal, ethical and economic standards for a merger. 5.1 Recommendations to the CEOs of Asda and Sainsbury The following recommendations will help both Asda and Sainsbury to enhance collaboration within the retail market while adhering to competition law in the UK: Asda and Sainsbury should develop a strategic plan for the promotion of their ethical standards to avoid hampering competition within the retail market. The company should introduce internal measures to prohibit price manipulation and the disciplinary measure for officials who engage in such action, thereby enhancing the reliability of any future undertaking to minimise prices for consumers when collaborating with other companies within the retail market.The companies should develop specific strategies for implementing CSF strategies such as working in collaboration with their suppliers, especially farmers who face competition from the EU. The objective of Sainsbury and Asda should be the eradication of poverty, which will enhance the reputation of the organisations in the promotion of competition within the UK retail sector. The companies should specifically address the public interest of the communities, which provide their supplies, for instance, by contributing to their efforts to enhance modern farming techniques, acquire farming technology and improve their harvest and profits.The companies should annually review the impact of the implementation of these recommendations, which are aimed to promote competition within the UK retail sector. Asda and Sainsbury should review their progress in CSF strategies in the communities of their suppliers to enhance public interest. The review should be conducted annually and should determine the emerging environmental concerns, perceptions of collusion and price manipulation and provide training for SMEs within the sector.The companies should ultimately use the legacy they develop after implementing these recommendations to propose a holistic analysis of mergers to the CMA and present another proposal for collaboration of Sainsbury and Asda within the retail sector. Asda and Sainsbury should adopt a new model of collaboration within the UK retail sector. The model should be based on enhancing ethical practices, promotion of public interest and the wellbeing of stakeholders, as well as adopting CSR strategies that address the environmental concerns that emerged from the CMA assessment of the proposed merger that was rejected. The objective of the two companies should be to facilitate the recognition of a new and holistic approach of assessing the effects of a merger on the UK retail sector. References Asda, 2020. Our Story. [Online]Available at: https://corporate.asda.com/our-story[Accessed 24 April 2020]. Asda, 2020. Who We Are [Online] [Accessed 25 April, 2020]. Chakraborty, R., Dobson, P.W., Seaton, J.S. and Waterson, M., 2014. Market consolidation and pricing developments in grocery retailing: a case study. In the Analysis of Competition Policy and Sectoral Regulation (pp. 3-29). Chakraborty, R., 2018. Do Retailers Manipulate Prices to Favour Private Label over Brands? Available at SSRN 3147151. Chakraborty, R., Dobson, P.W., Seaton, J.S. and Waterson, M., 2015. Pricing in inflationary times: The penny drops. Journal of Monetary Economics, 76, pp.71-86. Chakraborty, R., 2018. Marketing strategy and supply chain relations in grocery retailing (Doctoral dissertation, Loughborough University). Colla, E. and Lapoule, P., 2012. E-commerce: exploring the critical success factors. International Journal of Retail & Distribution Management. Ellram, L.M. and Tate, W.L., 2016. The use of secondary data in purchasing and supply management (P/SM) research—Journal of Purchasing and Supply Management, 22(4), pp.250-254. Fatricia, R.S., 2016. Swot Analysis of Sainsbury’s Supermarket. Jurnal Manajemen Terapan dan Keuangan, 5(1). Ferrando, T. and Lombardi, C., 2019. EU competition law and sustainability in food systems: addressing the broken links. GOV.UK, 2019. J Sainsbury PLC/ Asda Group Ltd merger inquiry. [Online]Available at: www.gov.uk/cma-cases/j-sainsbury-plc-asda-group-ltd-merger-inquiry[Accessed 21 April 2020]. Gray, D.E., 2019. Researching the business world. Sage Publications Limited. Griffith, R. and Nesheim, L., 2010. Estimating households’ willingness to pay (No. CWP24/10). CEMMAP Working paper. Guo, L. and Wang, Z., 2019. Ratio analysis of J. Sainsbury plc financial performance between 2015 and 2018 in comparison with Tesco and Morrisons. American Journal of Industrial and Business Management, 9(2), pp. 325-341. Harris, P., Dall’Olmo Riley, F., Rettie, R. and Hand, C., 2008. Offline to online: the transfer of store loyalty in grocery shopping in the UK. Hokelekli, G., 2017. Essays on retailers’ private label portfolio. Hökelekli, G., Lamey, L. and Verboven, F., 2017. Private label line proliferation and private label tier pricing: a new dimension of competition between private labels and national brands. Journal of Retailing and Consumer Services, 36, pp.39-52. Jensen, M. D. and Snaith, H., 2016. When politics prevails: the political economy of a Brexit. Journal of European Public Policy, 23(9), pp. 1302-1310. Jones, P. and Comfort, D., 2019a. A commentary on the United Kingdom’s leading food retailers’ resilience plans in the face of climate change. Journal of Public Affairs, p. 2047. Jones, P. and Comfort, D., 2019b. Stories and Retailer Brands: A Study of the UK’s Leading Retailers. Indonesian Journal of Contemporary Management Research, 1(2). Kingham, J., 2018. Why the Sainsbury/Asda Merger is Necessary but not Sufficient. [Online]Available at: https://www.google.com/amp/s/seekingalpha.com/amp/article/4174932-why-sainsbury-asda-merger-is-necessary-not-sufficient [Accessed 24 April, 2020]. Kolyva, M., 2019. Conglomerate mergers and Competition Law. The EU approach. Marsden, T., Moragues Faus, A. and Sonnino, R., 2019. Reproducing vulnerabilities in agri-food systems: Tracing the links between governance, financialization, and weakness in Europe post-2007-2008. Journal of Agrarian Change, 19(1), pp. 82-100. Nash, J., 2019. Exploring how social media platforms influence fashion consumer decisions in the UK retail sector. Journal of Fashion Marketing and Management: An International Journal. Newing, A., Clarke, G.P. and Clarke, M., 2015. Developing and applying a disaggregated retail location model with extended retail demand estimations. Geographical Analysis, 47(3), pp.219-239. Pantano, E. and Vannucci, V., 2019. Who is innovating? Exploratory research of digital technologies diffusion in the retail industry. Journal of Retailing and Consumer Services, 49, pp. 297-304. Quinlan, C., Babin, B., Carr, J. and Griffin, M., 2019. Business research methods. South-Western Cengage. Rahman, M.S., 2017. The Advantages and Disadvantages of Using Qualitative and Quantitative Approaches and Methods in Language” Testing and Assessment” Research: A Literature Review. Journal of Education and Learning, 6(1), pp.102-112. Sainsbury’s, 2020a. Our Values. [Online]Available at: https://www.about.sainsburys.co.uk/making-a-difference/our-values[Accessed 24 April 2020]. Sainsbury’s, 2020b. Our Vision. [Online]Available at: https://www.about.sainsburys.co.uk/about-us/our-vision[Accessed 24 April 2020]. Sainsbury’s, 2020c. Results, Reports and Presentations. [Online]Available at: https://www.about.sainsburys.co.uk/investors/results-reports-and-presentations[Accessed 3 June 2020]. Swinnen, J.F., 2018. The political economy of agriculture and food policies. Basingstoke, UK: Palgrave Macmillan. Thomassen, Ø., Smith, H., Seiler, S. and Schiraldi, P., 2017. Multi-category competition and market power: a model of supermarket pricing. American Economic Review, 107(8), pp.2308-51. Thompson, J. and McLarney, C., 2017. What effects will the strategy changes undertaken by next Plc have on themselves and their competition in the UK Clothing Retail Market? Journal of Commerce and Management Thought, 8(2), pp. 234-264. Walmart Corporate, 2020. 2020 Walmart Annual Report – Walmart Corporate. [Online]Available at: https://corporate.walmart.com/media-library/document/2020-walmart-annual-report/_proxyDocument?id=00000171-a3ea-dfc0-af71-b3fea8490000[Accessed 3 June 2020]. Wood, S. and Alexander, A., 2016. Regulation in practice: Power, resources and context at the local scale in UK food retailing. Environment and Planning A: Economy and Space, 48(9), pp.1848-1863. Appendices Appendix 1 (Sainsbury’s, 2020c) Appendix 2 (Guo and Wang, 2019) Appendix 3 (Kingham, 2018) Appendix 4 (Walmart Corporate, 2020) Appendix 5 (Harris, Dall’Olmo Riley, Rettie and Hand, 2008) Appendix 6 (Chakraborty, 2018) Appendix 7 (Chakraborty et al., 2015) REFLECTIVE ESSAY The project was based on the review of literature on mergers within the retail sector. The project was completed in three phases, that is the planning stage, research and the writing of the report. The planning stage entailed the determination of the topic for the project, the methods that would be used to conduct the inquiry and the development of a schedule. The research was conducted on the UEL database and the websites of the relevant organisations. The secondary data sources that were acquired were after that analysed to develop critical arguments on the topic. The writing of the paper marked the completion of the project. I developed my leadership skills in the preparation of my project. I was in charge of the completion of my project. I, therefore, developed clear objectives that guided me in the completion and submission of the project within the timeframe provided by the learning institution. Some of the guidelines I set for myself from the onset was the adherence to the timeframe provided for the project and the provision of a quality paper. I subdivided the phases of the project into specific timeframes that I adhered to. I also proofread my report after completion to ensure I provided quality work. Time management was a crucial skill in this project. From the onset of the project, I strictly adhered to my timetable, which specified the three phases of the project and key deliverables. In the first phase, which I allocated one week for, I developed a plan for the completion of the project and specified the activities that I would conduct to achieve my objectives. The second phase for research was conducted throughout 2 weeks. The last phase of writing the report was conducted within a period of 5 weeks. I was in charge of managing the project, thereby enhancing my work ethic. I developed a commitment to complete the project within the timelines I had set-up. Due to the development of a strong work ethic, I completely immersed myself and concentrated my energies into conducting the research and preparing the write-up. I adhered to my schedules and worked for long hours to complete the project. My research skills significantly improved in the process of developing the project. I learnt how to acquire reliable data sources from the UEL database. I also learnt how to refine my research to acquire the most relevant and up to date information. Moreover, since the topic for the project was recent, I explored numerous reports to learn of the different arguments that were made concerning the topic. Afterwards, I sifted through the bulk of information I had acquired to determine the most pertinent data for the project. I used critical thinking skills to develop substantial arguments on the topic. The discussion section particularly necessitated the examination of unique perspectives on the topic as well as criticisms for the arguments made by stakeholders. My critical thinking helped me determine new theories that could be used to resolve the problem of collaboration in a market sector that is dominated by four retailers. I used my creative skills to provide solutions for business management problems. I created alternative arguments to the assessment criterion that is currently adopted by the CMA to assess the impact of a merger on the retail sector. I developed my writing skills when preparing the final report. Specifically, I adhered to professional writing standards by editing and proofreading the final project before submission. I also presented the project in clearly divided sections with headings and subheadings. Additional material was included in the appendix, which also included citations of the papers from which they were acquired. I also concisely presented my ideas, thereby maintaining the attention of a reader to the basic details of the topic. I also provided references to all external sources I used to develop the ideas for my project. I developed my skills as a team player when attending the events that were organised by the CfSS. During the events, I would contribute to the topics of discussion. I would also give other students who attended the CfSS events an opportunity to present their ideas. I worked together with other students to develop solutions to business problems that we may face in the workplace. I developed the skills of persuasion while interacting with other students in the events organised by CfSS and in completing my project. I learnt of the importance of not only communicating ideas but also using methods and approaches that would persuade my audience to note my points of discussion. In writing, I also developed my persuasive skills by providing solutions to the problems that emerged from my criticisms of the existing theoretical framework for assessing mergers and competition within the UK retail sector. I learnt to conduct self-appraisal of my work. I consistently analysed my approaches, objectives and work done throughout the period of developing the project. I mitigated my partiality when reflecting on my beliefs and ideas, thereby enhancing my thought processes and solutions to the problems encountered when creating the project. Furthermore, I also learnt to develop a value system that was based on integrity, which guided my self-appraisal. I developed my technological skills in the preparation of the project. Through the use of software such as Microsoft Word and online research databases, I increased my knowledge of the methods of developing a quality report using digital tools. The purpose of this essay is to outline the skills that I developed in the process of completing my project, and through my attendance of events that were organised by the CfSS. The skills acquired through the project are useful for the workplace, and as such, can be incorporated in any job application. I will use the technological, research, critical and creative thinking skills that I learnt from the research to convince potential employers of my suitability for the roles in their organisation. My recommendation is for the continual development of the skills I have acquired, through the engagement in further research and participation in professional events.
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