Two ambitious but modest-sized supermarkets, Morrisons and Safeway, have agreed a takeover. The news has thrown Britain's highly aggressive retail sector into a tizz. BBC News Online explains why.

I've never even heard of Morrisons. Who are they, and why are they buying Safeway?

Unless you live in the North of England, especially Yorkshire, you can be forgiven for never having heard of Morrisons.

They only have just over 100 stores, and they are a modestly middle-market operation, without any of the frills you get with a Tesco or a Sainsbury's.

And that is one reason why they are arguably Britain's most successful retailer, routinely turning in profits far more impressive than their mightier rivals.

The company's financial success - due to a combination of frugality and market savvy - has taken them into the FTSE 100 index of leading shares, and given them the muscle to take over Safeway, a firm with almost four times as many stores.

Safeway - no longer any relation, by the way, to the US chain of the same name - is mired as a medium-sized retailer in a market dominated by three giants.

Morrisons sees Safeway as a rapid and affordable way to leapfrog directly into that big league.

I shop at Safeway. Will I notice any difference?

Not much.

The Safeway brand will continue to exist, although probably only on the smaller, city centre stores - bigger supermarkets will switch to Morrisons.

And no stores should close, since the two chains are rarely in direct local competition - Morrisons is strongest in Yorkshire and Lancashire, while Safeway focuses on the Southeast and Scotland.

All those niggly things like loyalty cards should continue uninterrupted.

The two chains' managements will tell you, however, that you will benefit from shopping at a much larger retail group.

A bigger retailer can negotiate better deals with suppliers and hence, in theory, deliver cheaper goods to the public.

Critics, meanwhile, worry that the vast supermarket chains have less "soul" than their smaller rivals.

A chain like Morrisons, still under the thumb of the founding family, is just small enough to have "soul", but may not be able to keep its traditions going in the big league.

Should I be worried about all those supermarket shares I own?

Not if they are Safeway ones, which jumped by more than one-quarter after the deal was announced.

But the takeover could be read as a subtle indication of trouble in the sector.

The supermarket business is wildly competitive, and almost obsessively focused on price.

This means wafer-thin margins, the sort of environment in which only the very biggest firms can prosper.

And while things are ticking over fine at present, with British consumers shopping like demons, any sign of a severe slowdown in expenditure could be nasty.

Can we expect more of the same?

Not a huge amount.

There is a limit to how much market share a retailer like Tesco, already hugely dominant, can grab without running into regulatory trouble.

The deal puts the onus on Sainsbury's and Asda - currently numbers two and three behind Tesco, but both roughly around the same size as a merged Morrisons/Safeway - to react.

Asda is growing quickly already, largely thanks to its exceptionally aggressive pricing.

But Sainsbury's, which seems muddled over strategy, trying to appeal to all ends of the market at the same time, may feel tempted to splash out on an acquisition of its own.

Watch this space.