Watchdog sinks hope of Sainsbury’s/Asda merger

The Competition and Markets Authority (CMA) has blocked the proposed Sainsbury/Asda merger ahead of its self-imposed deadline, saying UK consumers would be worse off if the two giant retailers combined forces.

It said prices would rise, the quality and the range of products would be reduced, services such as online delivery would be affected and there would be a poorer overall shopping experience.

Stuart McIntosh, chair of the inquiry group, said it was the CMA’s responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week and although it had conducted a detailed analysis of the impact of the proposed deal, it found overall, the merger would reduce competition in the market and would be more likely to lead to price rises than price cuts.

“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,” he said.

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

The decision follows a provisional finding published in February, which talked of “extensive competition concerns” .

The deal, which was announced last April, would have seen Sainsbury’s become a subsidiary of Asda’s parent company, Wal-Mart and create a combined group worth around £13.2 billion that could transform the UK’s grocery market’s landscape by knocking Tesco off its top spot, according to KantarWorldpanel analyst Fraser McKevitt.

Where next?

Only last week, the two retailers remained bullish, releasing a statement that said queried the CMA’s provisional findings, saying the analysis of their proposed merger contained “significant errors” and that its threshold for identifying competition problems was set at “an unprecedentedly low level, therefore generating an unreasonably high number of areas of concern”.

It pledged to deliver £1 billion of lower prices annually by the third year post-completion, and pay small suppliers within 14 days, however this was not enough to satisfy the CMA.

Sainsbury’s chief executive, Mike Coupe and Asda chief executive, Roger Burnley insisted they were trying to bring their businesses together “so that we can help millions of customers make significant savings on their shopping”.

The main question now is where next for Sainsbury’s, which has seen poor trading and steady erosion of its market share?  And will Asda’s US-based parent company continue to seek a way out of the UK grocery market?