Who will win the supermarket sweep?

Business Editor Mike Parker looks at what it all means for shoppers, supermarket employees and the grocery business.

SIR Ken Morrison must have chuckled his way from Bethnel Green all the way back to his home town of Bradford. The bluff Yorkshireman has stirred up an almighty hornets' nest.

Like the catchline of his group - more for less - Sir Ken's £2.9bn bid last Thursday for rivals Safeway has engineered a situation from which Wm Morrison will benefit, whatever bidding war ensues. The announcement yesterday that Sainsbury's is poised to make a better offer, and with voracious US retailer Wal-Mart eager to join the fray through its Asda brand, the speculation is all about who will emerge with the spoils.

Shoppers may need to pay closer attention to the buyout battle than they think. Safeway shoppers are used to superstores founded more on choice than price, as too is Sainsbury's. Morrisons and Asda, meanwhile, would strip back the range in favour of giving customers the best deal possible.

"They have much, much keener prices," says John Wood, news editor of industry publication The Grocer. "Asda and Morrisons vie with each other for the lowest prices. One of the ways Asda gets prices low is its range is not as wide as some of the others. Sainsbury's would take Safeway back up-market."

The implications do not lie solely with price and choice on the shelf alone. Whole communities could find Safeway shareholders' preferred buyer could affect not just who they shop with but also where they shop.

Retail watchdog, the Consumer Association, says Asda and Sainsbury's have major competition issues to overcome if they are to get their hands on Safeway. Both groups might have to dump stores in some areas.There is no telling if these stores will remain as supermarkets.

"Sainsbury's has a fair degree of overlap between its stores and Safeway's stores, with almost a third of stores in the same town. Asda has roughly one in five stores in the same town as a Safeway," says an association spokesman.

Morrisons, on the other hand, has less than ten per cent of shops in towns which boast a Safeway. "Such a merger of smaller players must be closely analysed to ensure that a cosy oligopoly is not created," the spokesman adds.

Canny Sir Ken knows that North-leaning Morrisons would happily slip the much larger, predominantly South-based Safeway into its portfolio without doing too much damage to fair competition in towns and cities.

Sainsbury's and Asda do not enjoy the same geographic synergy and would be forced to shed many south-east outlets.

And that is where Sir Ken may have played his trump card. With scores of supermarkets up for grabs in the Home Counties, Morrisons would have ready- made customer bases eager to learn the penny-pinching savings of Sir Ken's 'more for less' mantra. A retail insider reveals: "If you wanted to be Machiavellian, you could probably say that Morrison started the ball rolling knowing that stores in the south-east would fall out of the bottom of any deal."

While the big city players spark excitement in the retail sector, workers on the shopfloor are waiting in nervous anticipation to see who will be their new bosses. Shop workers' union Usdaw wants a speedy end to the bidding process for the sake of its members.

Sir Bill Connor, general secretary, comments: "It's very unsettling for the workforce and we believe it's in everyone's interests to end this uncertainty. Both Sainsbury's and Asda would face referral to the competitions commission and would, if successful, have to sell a large number of stores.

"This would prolong the uncertainty for thousands of shopworkers and see the present retail shake-up go on for months. The attraction of the Morrisons' bid is that it could be concluded quickly, it would not involve the disposal of stores, it would give UK consumers a choice of four strong retail chains and shopworkers could get on with their jobs sooner rather than later."

Suppliers also await the outcome with some trepidation. Large supermarket chains are notorious for pushing prices down, often at the expense of much smaller traders who must obey every whim to keep their contracts.

Bob Stradling, lecturer at Durham Business School, part of Durham University, says: "There must be concern among suppliers. There may be a legally binding contract that has to run its course but after that they could be left high and dry. If you are a supplier to Safeway, your life will undoubtedly change. The new owners could use their existing suppliers."

The ramifications for winners and losers alike are wide ranging. It was claimed in the weekend's national press that Sainsbury's and Asda already had designs on a joint purchase of Safeway before the latter allegedly became 'too greedy'.

The joke doing the rounds among the retail world is that, while Sainsbury's and Morrisons are condemned to putting their share price on the line by offering solely shares or shares and cash, Asda's parent company could buy Safeway with the takings from its tills. Some have gone so far as to suggest that were Asda to try to gazump the rest, it would be a selfish attempt to stop others getting their hands on a greater market share.

Others are not so lucky in having the financial backing to buy whole store groups for fun. Sainsbury's needs Safeway. Tesco has steamed ahead at the top of the supermarket ladder and Asda are gathering pace in true Wal-Mart fashion.

Sainsbury's would leapfrog Tesco in both the number of stores and in turnover if it bought Safeway, whilst an Asda acquisition would push it into second. Morrisons and Safeway combined would push it into third just ahead of Asda but would be the best for shoppers with four large chains fighting it out to be top dog.

WHATEVER the outcome, Sir Ken will keep on smiling. If his attempt to turn his father's Northern egg and butter market business into a national big-hitter fails he will consolidate his position and pick off Safeway stores that fall foul of Asda or Sainsbury's existing outlets. That is if Sir Ken doesn't decide to play hardball and up his bid.

Anthony Platts, associate director at North-East stockbrokers Wise Speke, says: "Safeway shareholders are really in a no lose situation - they can simply sit back and take the highest offer, as and when any takeover battle comes to an end. There is every likelihood that, if Sainsbury's interest in Safeway becomes a firm offer, Morrisons will make an improved offer in return, so this situation could be drawn out for some time."

Getting an analyst, academic or trade insider to pick a winner is never easy. Many would privately suggest that Morrisons are likeliest to win but at a much higher price than the original £2.9bn offer. The ordinary shopper might consider such an outcome a victory themselves. Having Sir Ken in charge could be the best bet to make them chuckle, if not to Bradford, then all the way to the bank.