Watchdog begins Asda-sainsbury’s inquiry

THE proposed £12bn merger between Asda and Sainsbury’s to create a supermarket giant is being formally investigated by the competition watchdog.

The Competition and Markets Authority will examine whether the potential tie-up of the two leading grocers will affect shoppers and suppliers.

It will look into whether the combined business would result in a less competitive environment and constrained choice for consumers, as well as higher prices or even worse service. Also under scrutiny is whether the tieup – which would give the joint business almost a third of the UK market – could result in suppliers being squeezed on prices as the merged company’s greater buying power gives it more leverage.

Andrea Coscelli, chief executive of the CMA, said: “About £190bn 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 and will not allow it to go ahead unless any concerns we find are fully dealt with.”

The CMA said that both Asda and Sainsbury’s have asked for a “fasttracking” of the investigation process.

The regulator normally conducts a two-phase probe, with the first part examining whether competition issues will arise and a more detailed investigation is required.

However, if it is clear that there will be concerns – as in the case of the Asda and Sainsbury’s tie-up – then merging companies can request a hastened move to the second phase.

The CMA said it “expects to accept this request unless it receives any valid objections to the use of the fast-track process”.

The regulator is now asking for evidence submission by Aug 31 on how the merger could affect competition.

News first emerged in April of the deal that would bring together the two businesses with an estate of about 2,000 stores. It was promoted by the companies as having the potential to cut prices as the combined companies benefited from economies of scale.

However, to get around competition concerns it is expected that wide-scale disposals will have to be made to stop the combined business dominating swathes of the sector, such as in areas where Asda and Sainsbury’s are the only supermarkets.

Suppliers are likely to feel the brunt of the impact if the merger goes through, according to law firm Gordons. Mark Jones, a partner and its head of food and drink, said: “The issue for suppliers is less about the prospect of being ‘squeezed’ and more about the fact that a lot of suppliers offer the two businesses different prices.”

“Some suppliers will be making more money off Sainsbury’s than they are Asda.

“Once the combined business sees the supplier prices for both Asda and Sainsbury’s, the prices will be aligned to the lower price, meaning ultimately suppliers will make less money.”