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LONDON: May 10, 2018. According to DP World UK general manager Logistics Nichola Silveira, the biggest challenge to the proposed £10 billion merger between UK supermarket Sainsbury’s and Walmart’s UK subsidiary Asda will be logistics, not regulator approval:

Last week was a good one for Jeff Bezos. Amazon’s founder owns 78.83 million shares in the tech giant, which gained him US$5 billion after its latest earnings beat expectations.

With big bricks and mortar rival Walmart under growing pressure, its proposed tie-up in the U.K. with Sainsbury’s, the second largest supermarket, has been seen by some as a retrenchment to enable it to focus on home turf.

While Amazon’s US$13.7 billion acquisition of Whole Foods came out of the blue last year, the tie-up between Sainsbury’s and Asda, Britain’s second and third-largest food retailers respectively, is less of a surprise. The country’s embattled High Street - and in particular, its low margin food retail sector - has struggled amid stiff competition and rising costs.

The proposed combined business will employ around 330,000 people across a network of 2,800 Asda, Argos and Sainsbury’s stores to create one of the UK’s leading food, general merchandise and clothing retailers.

Real estate is by far the biggest assets these companies have. The potential, however, lies in the store locations, where Sainsbury’s convenience store network would be crucial for the new company to find a proper footing in online retail – much like with its acquisition of Argos which saw an almost overnight revival in fortunes thanks to its network.

While the merger announcement said there were no plans for store closures, the large sites in inner city areas can undoubtedly become profitable logistics hubs, serving huge amounts of urban customers.

While regulators and competitors may question the deal - which would combine the 16 percent market shares of both Asda and Sainsbury’s to surpass Tesco’s 28 percent - grocery demand continues to soar.

Silveira DP World General ManagerAccording to grocery industry research non-profit IGD, Europe’s retail market will grow by a compound annual rate of 3.7 percent between 2017 to 2022, adding €377.6 billion to the global market. It will be worth a staggering €2,289 billion by 2022 – fuelled largely by growth in Eastern Europe. The U.K. will grow from €216 billion to €250 billion.

However while disposing of surplus real estate will be relatively easy, integrating the Asda and Sainsbury’s logistics platforms will be harder to do.

In a world where connectivity is a major driver of business efficiency, the post-merger company will need to create a single omnichannel offering, providing a seamless shopping experience where its online and physical operations are fed by the same data. Right now, no supermarket combines the two, making customer profiles almost useless.

By aligning data systems, customer demand data can be used to manage inventory in order to better predict product demand cycles and make best use of physical space across bricks-and-mortar stores.

Putting customer demand data at the centre of an operation gives unparalleled insight into many areas of consumer life – areas that marketeers have laboured over for decades. The value to be captured here cannot be underestimated.

While customer offering is integral to the success of any retailer, a company cannot become a stalwart without a lean and robust logistics network. For retailers in the age of omnichannel, the supply chain is where efficiencies are gained and value created. Both Sainsbury’s and Asda have grown up through a string of mergers before the Internet. Their real estate holdings, and the supply chains that cater for them, are inefficient but are still a vital part of their profit and structure.

Re-aligning how they move goods around from A to B will take bravery but will ultimately give the two companies a competitive advantage. The new management team will have to scrutinise every aspect of their supply chain legacy, identifying where inefficiencies can be squeezed out and where new gains can be made.

As the demand for groceries continues to soar, and customers demand a greater number of goods delivered to every corner of the globe, retailers will need logistics partners with port operations that can shave hours, minutes and seconds off their supply chain.

Intermodal port capabilities, much like those that the DP World network possesses, can help retailers get their fresh produce off ships, onto rail and then onto shelves in a much shorter time than many legacy networks. This, combined with demand planning capabilities and yard transparency, gives retailers extra capacity in the areas they need it and the actionable expertise to create a competitive edge within the market.

As the Sainsbury’s and Asda deal progresses, an opportunity to reimagine the customer offering by food retailers, and the supply chain that makes it possible, will present itself. The winners will be the ones that scrutinise their legacy networks, compress their operations, embrace cutting edge technology and choose the right logistics partners.

With grocery demand only going one way, it’s all to play for.

Ms. Silveira is the former CEO of DP World’s port facility at Yarimca, Turkey. Prior to the appointment, she was APL's Regional Operations manager for the Middle East, UAE and Africa.

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