Why Sainsbury‘s wants to elevate its relationship with Argos


In November Britain‘s second largest supermarket chain quietly moved to buy Home Retail Group, the parent company of Argos and Homebase, with a £1bn cash and bid approach. On Tuesday Sainsbury‘s made it transparent that the proposal was rejected and said that it was now considering its position.

Sainsbury‘s has been courting Argos for around a year now, with Argos concessions being trialled in selected Sainsbury‘s stores. The big four grocer said its board believed a combination of the two groups to be “an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation”.

It continued: “The combination is an opportunity to bring together two of the UK‘s leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multi-channel proposition.”

Sainsbury‘s previously owned Homebase until 2001, when it sold the DIY chain to venture capitalist group Permira, who went on to sell it to GUS (a former version of Home Retail) for around £900m.

The grocer said a tie-up would “create a food and non-food retailer of choice”, with a strong holding on the food, grocery, clothing, homewares, toys, stationery, electricals, furniture and other general merchandise categories.

Were a marriage of the two businesses to happen, combined stores and operations would cut costs. According to Sainsbury‘s, its products could be sold through Argos‘s network and vice-versa.

Although it has fared well in the pricing war, Sainsbury‘s still faces pressure from value players such as Aldi and Lidl. The acquisition of Home Retail would strengthen its offering and the multichannel strength of Argos would look good for Sainsbury‘s.

In addition, a takeover would give both retailers a better chance of competing with the imminent launch of Amazon Fresh in the UK.