Asda and Sainsburys - what now for construction opportunities?
Published by Glenigan on 4th June 2019 -
After Asda and Sainsbury’s merger was ruled out by the Competition and Markets Authority in April, Sainsbury’s chief executive officer Mike Coupe warned: “The CMA is … effectively taking £1 billion out of customers' pockets” but will the construction industry lose out too?
The proposed £13 billion merger of two of the UK’s four biggest supermarkets was expected to generate hundreds of millions of new work in store fit-outs.
Asda and Sainsbury’s pledged not to close any stores and spend £600 million on a store-refit programme and computer programme integration.
That spending has now gone, but both companies will still remain significant construction clients.
Sainsbury’s bought Argos in 2016 and has been integrating stores into its estates. By March 2019, 281 Argos stores had been installed in Sainsbury’s supermarkets.
The integration of Argos is largely complete and led to a 191,000 sq ft reduction in Sainsbury’s retail space in the latest financial year. A total of 46 stand-alone Argos stores were closed but 90 new Argos stores opened in Sainsbury’s supermarkets last year. Another 10 more will open this year.
This financial year, Sainsbury’s will still open two new supermarkets and 10 convenience stores and expects to spend around £550 million on capital expenditure.
Glenigan’s construction market analysis has identified a swathe of projects in the pipeline but the focus is on smaller projects. In 2018, the average construction contract let by Sainsbury’s was just under £2.3 million.
Projects moving to site range from an £800,000 alterations project at Stratton Street in London (Glenigan Project ID 18424964) to a £3 million store at Staplehurst (Glenigan Project ID 11374269)
Asda opened 146,000 sq ft of new space in the 2017 calendar year comprising one home shopping centre, three superstores and five supermarkets. Asda’s financial results for last year have not been released yet but recent stock exchange filings by parent group, Walmart, show an estate of 617 UK stores.
Glenigan’s construction market intelligence has identified a swathe of Asda schemes in the construction pipeline, but most are valued below £1 million and many are extension schemes.
These range from an £500,000 extension of an Asda store on Wigmore Lane in Bedford to an estimated £780,000 plan to extend a store in Dunbar (Glenigan Project ID 18431229).
One of the few new stores is the £8 million Vesuvius scheme in Worksop, which comprises a new store and petrol station and is being built by Worksop (Glenigan Project ID 14105673). Glenigan’s construction research shows that Asda is working on this scheme with Commercial Estates Group.
Spending will continue at both companies but the uncertain outlook for the wider retail sector, which was the generator for the proposed merger, remains.
Glenigan economics director Allan Wilén says: “Household incomes are growing only slowly and on-line purchases are taking a growing slice of retail sales. Against this backdrop, the retail property market faces weakening demand for retail space and softening rental values as many retailers look to rationalise and refurbish their existing estate.”
In the longer term, construction may not be out of pocket from the end of the Asda and Sainsbury’s merger.