In its final report into the proposed merger of Sainsbury's and Asda, the UK's Competition and Markets Authority has blocked the merger of the UK's second and third largest retailers, arguing that it would leave shoppers and motorists worse off.
CMA: "No option but to block merger"
Stuart McIntosh, chair of inquiry group said: "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. We have concluded that there is no effective way of addressing our concerns, other than to block the merger."
Why the merger was blocked
The CMA's final report follows a year long investigation and backs up the position set out in its provisional findings in February when it expressed strong concerns about a reduction in competition that would result from the merger. The report also rejects the subsequent proposals from Sainsbury's and Asda to address its concerns.
The prohibition of the merger is based broadly on three grounds:
- Price rises: The CMA found that the merger would substantially lessen competition at a local and national level and was likely to lead to higher prices. Sainsbury's and Asda had argued that increased scale from the merger would allow them to cut price by £1bn over three years and implement a margin cap on Sainsbury's fuel prices. However the CMA found that the time limited nature of these commitments did not address the permanent change to the market brought about by the merger and that it would be difficult to verify compliance with these commitments.
- Reductions in the quality and quantity of products available. The final report found that the two retailers are close competitors to each other and that product choice for shoppers was likely to be adversely affected by the merger. While it recognised that Aldi and Lidl are now major players in UK grocery, it pointed out that that they stock only around one fifteenth of the different product lines stocked by the Big Four and offer very few brands.
- A poorer shopping experience. The CMA argued that the quality of in-store service is a reflection of the intensity of competition at a local level so any reduction in this was likely to negatively impact factors such as customer service, checkout times and availability.
Reaction from Sainsbury's and Asda
In the light of the CMA's ruling, Sainsbury's and Asda have now agreed to terminate the merger process and will not seek a judicial review.
Sainsbury’s CEO, Mike Coupe, said:
“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. 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.”
Roger Burnley, CEO of Asda, commented:
“Asda’s DNA is delivering low prices for hard working families and that will never change. We were right to explore the potential merger with Sainsbury’s, which would have delivered great benefits for customers and supported the long term, sustainable success of our business. We’re disappointed with their findings but will continue to find ways to put money back into customers’ pockets and deliver great quality and service in an ever changing and demanding market. I have always been hugely aware that the last year has been an unsettling time for all of our colleagues and am immensely grateful for their commitment and dedication during that time. Our focus is now on the most important job we all have – delivering for our customers.”
Sainsbury's will report its annual results on May 1st
IGD Sainsbury's Trade Briefing 2019
27 June, London
Hear from Group CEO, Mike Coupe and the Sainsbury's and Sainsbury's Argos leadership teams, who will provide a business and commercial update on ‘Destination Sainsbury’s’.
Find out more »