Sainsbury's-Asda merger in doubt on CMA worries about pricing

By

Sandra Halliday

Published
Feb 20, 2019

Sainsbury's has hit back after the UK's competition regulator, the Competition and Markets Authority (CMA), raised concerns that its merger with Asda could reduce competition and lead to higher prices so can't go ahead in its current form.

The supermarkets giant said on Wednesday: “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.

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“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 planned merger of two of the big four UK supermarkets would be extremely important for the fashion sector as both chains have large clothing and accessories businesses. In fact, Asda was something of a pioneer with its George range, while Sainsbury's itself has been making major inroads into this sector with its Tu Clothing offer.

And any link-up would also have a major impact on the interiors and general merchandise sectors with both chains operating in these areas and Sainsbury's also owning Argos.

But the regulator appears to have been more concerned with the two chains' grocery and petrol station operations in reaching its preliminary conclusions and to be fair to Sainsbury’s, the CMA does seem to have demonstrated a lack of understanding on how goods are priced by retailers and why prices are set at particular levels.

The CMA has given Sainsbury's some options but they seem to be fairly unpalatable.  “The CMA has set out potential options for addressing its provisional concerns,” it said. “These include blocking the deal or requiring the merging companies to sell off a significant number of stores and other assets – potentially including one of the Sainsbury’s or Asda brands – to recreate the competitive rivalry lost through the merger.”

That latter option seems almost ridiculous is it suggests that the only way the two brands can be merged into one company is by selling one of them.