Asda-Sainsbury’s merger in jeopardy? Retailers hit back as UK competition regulator voices price rise and quality concerns

20 Feb 2019 --- Sainsbury’s and Asda have hit back at the provisional findings of the UK Competition and Markets Authority (CMA) which has voiced “extensive competition concerns” on the proposed merger between the two retail giants. In response to the in-depth probe, the supermarkets have accused the competitions regulator of “moving the goalposts” and “fundamentally misunderstanding how people shop in the UK today.” With questions being raised over the proposed tie-up, which would create ‎a more powerful rival to Tesco, the UK’s current market leader, its future is now in doubt – unless the retailers can satisfy the regulator through sell-offs.

The CMA’s investigation finds the merger could have an impact on choice and reduce quality with shoppers facing higher prices and a poorer overall shopping experience across the UK.

In what comes as a serious blow to Sainsbury’s and Asda, the CMA’s provisional findings, part of its Phase 2 investigation, reveals concerns that the merger could lead to a substantial lessening of competition at both a national and local level. 

The combined impact means that people could lose out right across the UK and that the deal could also cost shoppers through reduced competition in particular areas where Sainsbury’s and Asda stores overlap, according to the CMA.

The CMA has set out potential options for addressing its provisional concerns which include blocking the deal or requiring Sainsbury’s and Asda to sell off a significant number of stores and other assets. This could potentially including one of the Sainsbury’s or Asda brands, to recreate the competitive rivalry lost through the merger. 

“These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day. We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK. We also have concerns that prices could rise at a large number of their petrol stations,” says Stuart McIntosh, Chair of the independent inquiry group carrying out the investigation.

“These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out. It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don’t lose out,” he adds. 

As well as concerns for shoppers, the CMA is also worried the merger could drive up prices and reduce the quality of service for online customers.

However, the retailers insist combining Sainsbury’s and Asda would create significant cost savings, which would allow them to lower prices.

Commenting on the CMA’s provisional findings, a spokesperson for Sainsbury’s and Asda said in a joint statement: “These findings fundamentally misunderstand how people shop in the UK today and the intensity of competition in the grocery market. The CMA has moved the goalposts and its analysis is inconsistent with comparable cases.”

“Combining Sainsbury’s and Asda would create significant cost savings, which would allow us to lower prices. Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits,” the statement continued.

“We are surprised that the CMA would choose to reject the opportunity to put money directly into customers’ pockets, particularly at this time of economic uncertainty. We will be working to understand the rationale behind these findings and will continue to press our case in the coming weeks.”

The CMA’s current view is that it is likely to be difficult for the companies to address the concerns it has identified.

There is now a three-week consultation period on the provisional findings, during which time anyone may make submissions to the CMA. The regulator invites responses from interested parties to its provisional findings by March 13 and its notice of possible remedies by March 6. The CMA’s final report will be issued by the end of April. 

Background to the proposed merger 
In April 2018, the retailers announced they were in advanced merger talks, fueling concerns about a supplier squeeze. 

Sainsbury’s already owns Argos while Asda’s George clothing brand vies with Marks & Spencer and Primark to sell the most clothing in volume terms. The enlarged supermarket group would have nearly 3,000 stores and annual sales of more than £50 billion. Sainsbury’s has a network of more than 1,400 supermarkets and convenience stores while Asda has around 600 stores. Sainsbury’s also has 800 Argos outlets.

Both companies realized that any proposed deal would likely be closely scrutinized by the competition watchdog over concerns it would reduce competition and tighten the grip the four major supermarket chains – Tesco, Sainsbury’s, Asda and Morrisons – on the UK grocery market.

Yesterday our sister website NutritionInsight reported on Asda’s recent certification moves in the vegan space. 

By Gaynor Selby