Sainsbury shows need for Asda deal as grocery growth slows

A shopper pushes a J Sainsbury Plc supermarket trolley containing an Asda plastic carrier bag and a Sainsbury’s plastic carrier bag in this arranged photograph in Watford, UK. (Bloomberg pic)

LONDON: J Sainsbury Plc showed why it’s so eager to lead a consolidation push among the UK’s grocers.

Excluding fuel, Sainsbury’s comparable retail sales rose 0.2% in the 16 weeks through June 30, the London-based company said Wednesday. That met the average analyst estimate but marked the slowest growth since the company acquired catalogue retailer Argos in 2016.

The meagre growth reflects price reductions in key areas like fresh meat, fruit and vegetables, Chief Executive Officer Mike Coupe said in a statement. Sainsbury ploughed 150 million pounds (US$198 million) into cuts in a bid to close the gap with market leader Tesco Plc and discounters Aldi and Lidl.

UK supermarkets are struggling to grow amid competition from the discounters and expanding online sales, pushing chains to consolidate. Sainsbury said it expects UK regulators to rule on its proposed $10 billion acquisition of Walmart Inc.’s Asda in the second half of next year. Tesco this week announced a buying agreement with Carrefour SA of France to drive down costs.

Coupe said Sainsbury has secured 3.5 billion pounds of financing for the Asda deal from existing lenders and new institutions on “attractive terms.” The company said the commitments significantly exceeded its requirements.

Sainsbury said its revolving credit facility will increase by 550 million pounds to 2 billion pounds once the deal closes.