How will the smaller players be hit by the fallout from the battle for Safeway asks Elaine Watson
Sainsbury knows this is the last chance saloon. Asda is desperate not to let Safeway slip through its fingers, while Tesco can't afford to let either of them get their hands on it. Sir Ken Morrison, meanwhile, looks set to laugh all the way to the bank either way. But what about the players too small to enter the bidding frenzy?
If Wal-Mart snaps up Safeway, says Cap Gemini's Richard Hull, "Sir Peter Davis will have to respond". And that means looking for a consolation prize. Enter Somerfield, Big Food Group, or even TM Retail, he suggests. "It's a buyer's market out there."
Icelandic group Baugur, which has taken sizeable stakes in both Big Food Group and Somerfield in recent weeks, either has a screw loose or it knows something we don't, agrees one City analyst.
"The performance at both companies is improving, and of course it's possible that Baugur is very patient and is waiting for a turnaround. But taking such a substantial stake in BFG would suggest it is waiting for a buyer. And rumours are that Bill Grimsey wants to offload Iceland."
Mark Hughes at Numis Securities says: "Baugur is probably looking at store location and size rather than the current offer in terms of Iceland's potential."
If Morrisons or Wal-Mart get their hands on Safeway, adds another analyst, "Somerfield has to be on the radar. Kwik Save could be spun off to a venture capitalist, although it's not clear what the exit strategy would be."
Bill Grimsey and John von Spreckelsen declined to comment, but both of their retail empires will be increasingly marginalised if still more of the market is carved up between the biggest players, says Seymour Pierce's Rhys Williams. "It's not beyond the realms of possibility that Wal-Mart gets Safeway, and then Sainsbury buys Morrisons.
"That leaves three players with over 20% of the market and Somerfield and Iceland in the wilderness with 6% and 3% respectively."
Another analyst says that while companies such as Waitrose and M&S have managed to carve a niche for themselves at the top end of the market, Somerfield and Big Food Group have not, and could find things even tougher if an EDLP player gets even more of the market.
"The Safeway deal could impact everyone in the sense that benchmark prices could drop," he adds.
Although Marks and Spencer and Waitrose have a unique place in the market and are perhaps more insulated than most, there is a risk that those at the more premium end of the market could start to look more pricey if EDLP becomes the norm, points out Hughes at Numis. And that seems likely if Wal-Mart, Morrisons or Tesco get most of Safeway's spoils.
Strategically Waitrose has perhaps the most to lose. As MD Steven Esom reminded the OFT this week, waving through offers from the big boys would effectively scupper its long-term expansion plans. "Waitrose and other players would inevitably become and remain significantly smaller in relative terms," he says.
However, several companies, including Waitrose, M&S and the Co-operative Group are keen to get some of the spoils in the event of a messy break up.
The independent sector, meanwhile, faces yet more price pressure overall.
The fantastic prices Safeway's potential new owners are promising shoppers will not simply come from shutting down Safeway's head office and extracting synergies here and there, but from suppliers' margins, claims the Association of Convenience Stores. CEO David Rae says the power the multiples will be able to wield over suppliers will inevitably translate into less competitive deals for others in the sector. "The savings made by large conglomerates when buying from suppliers will be compensated for through higher costs for independents," he says.
Spar UK MD Jerry Marwood is equally blunt: "Tesco will stop at nothing until it has the major share of both the grocery and convenience markets. Now is the time for everyone in the convenience sector to act together and launch a vociferous campaign against this."
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Sainsbury knows this is the last chance saloon. Asda is desperate not to let Safeway slip through its fingers, while Tesco can't afford to let either of them get their hands on it. Sir Ken Morrison, meanwhile, looks set to laugh all the way to the bank either way. But what about the players too small to enter the bidding frenzy?
If Wal-Mart snaps up Safeway, says Cap Gemini's Richard Hull, "Sir Peter Davis will have to respond". And that means looking for a consolation prize. Enter Somerfield, Big Food Group, or even TM Retail, he suggests. "It's a buyer's market out there."
Icelandic group Baugur, which has taken sizeable stakes in both Big Food Group and Somerfield in recent weeks, either has a screw loose or it knows something we don't, agrees one City analyst.
"The performance at both companies is improving, and of course it's possible that Baugur is very patient and is waiting for a turnaround. But taking such a substantial stake in BFG would suggest it is waiting for a buyer. And rumours are that Bill Grimsey wants to offload Iceland."
Mark Hughes at Numis Securities says: "Baugur is probably looking at store location and size rather than the current offer in terms of Iceland's potential."
If Morrisons or Wal-Mart get their hands on Safeway, adds another analyst, "Somerfield has to be on the radar. Kwik Save could be spun off to a venture capitalist, although it's not clear what the exit strategy would be."
Bill Grimsey and John von Spreckelsen declined to comment, but both of their retail empires will be increasingly marginalised if still more of the market is carved up between the biggest players, says Seymour Pierce's Rhys Williams. "It's not beyond the realms of possibility that Wal-Mart gets Safeway, and then Sainsbury buys Morrisons.
"That leaves three players with over 20% of the market and Somerfield and Iceland in the wilderness with 6% and 3% respectively."
Another analyst says that while companies such as Waitrose and M&S have managed to carve a niche for themselves at the top end of the market, Somerfield and Big Food Group have not, and could find things even tougher if an EDLP player gets even more of the market.
"The Safeway deal could impact everyone in the sense that benchmark prices could drop," he adds.
Although Marks and Spencer and Waitrose have a unique place in the market and are perhaps more insulated than most, there is a risk that those at the more premium end of the market could start to look more pricey if EDLP becomes the norm, points out Hughes at Numis. And that seems likely if Wal-Mart, Morrisons or Tesco get most of Safeway's spoils.
Strategically Waitrose has perhaps the most to lose. As MD Steven Esom reminded the OFT this week, waving through offers from the big boys would effectively scupper its long-term expansion plans. "Waitrose and other players would inevitably become and remain significantly smaller in relative terms," he says.
However, several companies, including Waitrose, M&S and the Co-operative Group are keen to get some of the spoils in the event of a messy break up.
The independent sector, meanwhile, faces yet more price pressure overall.
The fantastic prices Safeway's potential new owners are promising shoppers will not simply come from shutting down Safeway's head office and extracting synergies here and there, but from suppliers' margins, claims the Association of Convenience Stores. CEO David Rae says the power the multiples will be able to wield over suppliers will inevitably translate into less competitive deals for others in the sector. "The savings made by large conglomerates when buying from suppliers will be compensated for through higher costs for independents," he says.
Spar UK MD Jerry Marwood is equally blunt: "Tesco will stop at nothing until it has the major share of both the grocery and convenience markets. Now is the time for everyone in the convenience sector to act together and launch a vociferous campaign against this."
{{ANALYSIS }}
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