25 Apr 2019 --- The UK competition watchdog has stopped the proposed Sainsbury’s-Asda merger in its tracks after finding the tie-up would lead to increased prices in stores across Britain and online. In its final report, the Competition and Markets Authority (CMA) found that UK shoppers would be worse off if Sainsbury’s and Asda – two of the country’s largest supermarkets – were to merge and so have blocked the proposal. In addition to price rises, the regulator is concerned about reductions in the quality and range of products available, or it leading to a poorer overall shopping experience.

The proposed merger already looked like it was in jeopardy in February when the CMA first voiced its “extensive competition concerns,” but today the CMA has published its findings. 

Following an in-depth investigation, a group of independent CMA panel members concluded that the deal would result in a substantial lessening of competition at both a national and local level for people shopping in supermarkets. This would mean shoppers right across the UK would be affected, not just in the areas wher Sainsbury’s and Asda stores overlap.

The two retailers had promised some divestments to try to satisfy competition concerns and promised to deliver several other post-merger commitments including £1 billion (US$1.3 billion) of lower prices annually by the third year post-completion; to invest £300 million (US$386 million) in the first year of the combination and a further £700 million (US$902 million) over the following two years as the cost savings flow through. 

The supermarkets also pledged to pay small suppliers (turnover with the business of less than £250k) within 14 days while Asda would continue to pay its small suppliers within 14 days, in line with existing commitments. However, this was not enough to allay concerns. 

“It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers,” says Stuart McIntosh, Chair of the inquiry group.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger,” he adds.

As a result of CMA blocking the merger, Sainsbury’s Walmart and Asda have mutually agreed to terminate the transaction, according to a statement sent to FoodIngredientsFirst. 

“The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers’ pockets,” says Sainsbury’s CEO, Mike Coupe.

“Sainsbury’s is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.”

As part of its investigation, the inquiry group also reviewed a wide range of issues in detail, such as the increased competition presented by discount stores like Lidl and Aldi. It also looked at how new or expanding competitors could affect the retail market, including online. While the panel carefully considered these industry developments, they did not allay its serious competition concerns about the merger, the CMA says. 

CMA panel members also reviewed the companies’ post-merger pledges that they would cut some prices. However, detailed analysis of the impact of the deal clearly showed that, overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts, according to the CMA.