Sainsbury’s-Asda merger: Competition investigation begins

24 Aug 2018 --- The UK Competition and Markets Authority (CMA) has launched its formal investigation into the proposed merger between retailers J Sainsbury PLC and Asda Group Ltd saying that “it’s vital to find out if the millions of people who shop in supermarkets could lose out as a result of this deal.”

The competition watchdog has started to scrutinize the proposed £12 billion (US$15.4bn) deal and the potential impact it will have on UK shoppers as well as suppliers. 

In April 2018, J Sainsbury and Wal-Mart, the world’s biggest supermarket retailer, first announced they were in advanced talks about a tie-up that would create ‎a more powerful rival to Tesco, the UK market leader. 

A merger between the UK’s second and third largest supermarket chains would create a new group with huge shares of the market in food, clothing, household goods and toy retailing that would be more powerful than Tesco. This has raised concerns about the emergence of a “duopoly.” 

Since the announcement of the merger, the CMA has been gathering the information needed to start its formal investigation and will now begin the first phase of its detailed assessment into how the deal could affect competition for shoppers in Britain. 

The CMA’s investigation will consider whether the deal could lead to less choice and therefore higher prices or worse quality services, across the range of products sold by both businesses. 

The probe will be looking into the groceries sold at both retailers, both in-store and online, as well as the fact that Sainsbury’s and Asda also compete to sell goods such as fuel, electricals, toys and clothing.

The CMA will also look at whether the merged company could use its increased buyer power to squeeze suppliers and whether this could have potential knock-on effects for shoppers. For example, through suppliers being less able to innovate or having to charge higher prices to stores that compete with the merged company.

“About £190 billion (US$243bn) is spent each year on food and groceries in the UK so it’s vital to find out if the millions of people who shop in supermarkets could lose out as a result of this deal,” says Andrea Coscelli, chief executive of the CMA.

“We will carry out a thorough investigation to find out if this merger could lead to higher prices or a worse quality of service for shoppers and will not allow it to go ahead unless any concerns we find are fully dealt with.”

Shortly after the Sainsbury’s-Asda merger was announced, analysis from the British think-tank New Economics Foundation (NEF) claimed that up to 2,500 jobs in core supermarkets supply chains could be at risk. Direct store closures and job losses have been ruled out by Sainsbury’s with the retailer claiming that the merger could, in fact, lead to lower prices of up to 10 percent.

However, the issue of lower consumer prices has led to speculation that this could be partly met through negotiating lower prices with suppliers.

Sainsbury’s and Asda have asked the CMA to move more quickly to the in-depth “Phase 2” part of the inquiry through a “fast-track” process.

In most merger cases, a full Phase 1 investigation is needed to determine whether a deal can be cleared or whether further scrutiny is required. However, merging companies can ask for the CMA’s review of the deal to be moved more quickly to Phase 2 where it is clear from an early stage that the deal requires an in-depth investigation.

The CMA expects to accept this request unless it receives any valid objections to the use of the fast-track process.

The CMA – an independent non-ministerial UK government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law – is now inviting views by August 31, 2018, on how the merger could affect competition. Further opportunities to submit views will also be provided during the Phase 2 investigation.

By Gaynor Selby