Worries that could stop the Sainsbury’s and Asda mega-merger


After four months of gathering information, the competition watchdog has pushed the button on its probe into the proposed £13billion merger between Sainsbury’s and Walmart-owned Asda – the UK’s second and third biggest supermarkets.

If the landmark deal goes ahead, it will create a supermarket monster larger than current market leader Tesco, with 330,000 employees, 2,800 shops, and sales of around £51billion.

The audacious move comes amid a wave of consolidation in the squeezed grocery sector. 

Firms including Tesco and Booker, and Co-op and Nisa have joined hands and forces to help fend off the threat of the discounters Aldi and Lidl, as well as that ubiquitous ecommerce terror Amazon, which has signed a supply deal with Morrisons and picked up Wholefoods.

Asda, owned by American giant Walmart, has suffered several years of underperformance

Asda, owned by American giant Walmart, has suffered several years of underperformance

Sainsbury’s lifted the lid on its proposed landmark merger with Big Four rival Asda in May

Sainsbury’s, which is at the wheel as Walmart retreats from the UK, claims that the grocers will find net synergies of around £350million as they harmonise the buying teams among their top suppliers. 

It has pledged, albeit vaguely, to use this to cut prices for customers, which it says will help it compete with the often cheaper disruptors.

Indeed, the new grocery double act -Sainsbury’s chief Mike Coupe and Asda boss Roger Burnley – have waxed lyrical about the plan, claiming it will futureproof the two businesses, and their respective employees, as the market transforms at top speed.

Investors seem satisfied too – the Sainsbury’s share price has risen from 270 pence per share to around 340 since news of the deal emerged. 

But the deal has its critics too, and the  competition watchdog, the Competition and Markets Authority (CMA), isn’t about to let two of the Big Four supermarkets merge – one hopes – without first pouring over the details and considering the consequences, not just for shoppers, but for suppliers and other retailers too.

Don’t try to second guess the CMA 

There’s a degree of unpredictability that makes the CMA a tricky institution to read.

Cases that were expected to be long and complex, such as its investigation into Tesco’s acquisition of wholesaler Booker, seemed to breeze through the process with unconditional clearance – a decision that was met with widespread surprise.

Conversely, it played hardball with Poundland when it married up with 99p stores, taking the deal to an in-depth ‘Phase 2’ investigation on the basis of some seemingly minor concerns.

The process crippled 99p stores’ finances and resulted in Poundland having to dispose of 60 shops.

Will it drive up prices? Will it lead to less choice for customers or worse service?

And the oft-inscrutable institution will not just be weighing up the merger’s impact on the grocery market either. The proposed marriage raises competition concerns around fuel, fashion, toys and general mechanise too.

Taking a notably tough stance from the off, CMA boss Andrea Coscelli said: ‘About £190billion 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.

‘We will carry out a thorough investigation to find out if [it] 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.’ 

But, what will the CMA be looking out for, and what might Sainsbury’s and Asda have to change before its future together gets the go-ahead?

Will customers be short changed?

Clearly, one of the CMA’s priorities will be to ascertain whether two brands operating from one board with shared buying can compete, and if failure to do so could lead to  higher prices and less choice in the long run.

Coupe argues not, as per his pledge to use buying synergies to cut prices on some common lines by as much as 10 per cent.   

However, there is scant detail yet on how, where and when those cuts will be applied, with some industry watchers unconvinced that they will materialise at all. 

The CMA might seek clarification and guarantees here, before taking Coupe’s word for it that the enlarged group will use its new powers for good.

Sainsbury's chief executive Mike Coupe (pictured) has pledged to lower prices for shoppers

Sainsbury's chief executive Mike Coupe (pictured) has pledged to lower prices for shoppers

Sainsbury’s chief executive Mike Coupe (pictured) has pledged to lower prices for shoppers

Will some stores change hands?

The watchdog typically examines how deals could impact competition on a local level. So, in areas where Sainsbury’s and Asda stores are dominant, the CMA might force the sale of a shop to a suitable rival.

According to an analysis by The Times, there are 300 areas where the watchdog may be concerned about the tie-up compromising local competition and shopper choice. 

Coupe has claimed previously that 138 out of Sainsbury’s 644 shops are within one mile of an Asda, but ‘only five of the 138 do not have any other brand of supermarket also within one mile’. 

But the exact number of stores hanging in the balance depends too on whether or not the watchdog classes Aldi and Lidl as competition, as it did (for the first time) in its probe of the Tesco-Booker merger.

Fast-growing Aldi aims to have 1000 stores by 2022 and opened 76 new shops in 2017

Fast-growing Aldi aims to have 1000 stores by 2022 and opened 76 new shops in 2017

Fast-growing Aldi aims to have 1000 stores by 2022 and opened 76 new shops in 2017

If the German discounters are classed as competition, between 28 and 54 stores will need to be sold, research by UBS claims. But, if they are not, the number of stores earmarked for closure according to the bank will be between 132 and 161. 

The grocer hopes the CMA will also consider online firms, namely Amazon, to be competition.   

If the watchdog does demand disposals of Sainsbury’s and Asda stores, the grocers’ ability to do so will hang on the likes of Tesco, M&S or Morrisons being willing or able to take the units off their hands.

And that’s not a given, as some supermarkets are slowing down store openings, and the fast-growing discounters tend to look for shops that are smaller than an average Sainsbury’s or Asda.  

Will it drive up fuel prices?

Alongside the issue of overlapping stores, the CMA is likely to scrutinise how the deal will affect competition in the selling of petrol.

According to data analyst firm Statista, the Big Four supermarkets account for nearly half of all the fuel sold in the UK, with Asda the fastest growing of the bunch in this category and Tesco the market leader.

But the merger would change all that, allowing Sainsbury’s to leapfrog Tesco at the pump as well as in stores.   

Asda is currently known for driving down the cost of fuel, but that could change where its nearest petrol competitor is a Sainsbury’s, as it would reduce the need to be competitive.   

And what about fashion?

Asda's George - the first ever supermarket clothing brand - was founded in 1990 by George Davies, the man behind High Street giant Next

Asda's George - the first ever supermarket clothing brand - was founded in 1990 by George Davies, the man behind High Street giant Next

Asda’s George – the first ever supermarket clothing brand – was founded in 1990 by George Davies, the man behind High Street giant Next

Another category in which the group will be gaining an intimidatingly large chunk of the market is value clothing. 

Asda’s George is currently the second largest value clothing retailer after being overtaken by Primark, according to Euromonitor data, while Sainsbury’s Tu brand is sixth.

What’s more, Sainsbury’s £1.4billion acquisition of Argos less than two years ago also enhanced its position in the toys, home and electricals spaces, where Asda holds strong market share too.

Once the CMA has worked its way through its long list of potential competition concerns in the first 40-day stage, it could take the merger to an in-depth Phase 2 probe, which will add around 24 weeks to the process and delay the deal further – much to the irritation of the eager supermarkets.  

But, the watchdog has the power to dash the grocers’ dreams altogether unless the worries it raises can be satisfactorily assuaged.

Sainsbury’s and Asda will have many hoops to jump through yet before they can set about shaking up the squeezed supermarket sector and taking the fight to the mighty Amazon. 



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