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The news that the com­pe­ti­tion watch­dog has de­clared that nearly 500 of Asda and Sains­bury’s su­per­mar­kets over­lap didn’t come as a great sur­prise.

The Com­pe­ti­tion and Mar­kets Author­ity (CMA) has found po­ten­tial com­pe­ti­tion is­sues for stores in 463 lo­cal ar­eas. It raised con­cerns over 225 Sains­bury’s stores and 238 Asda stores.

The rev­e­la­tion raises the prospect of po­ten­tial wide­spread store sell-offs in or­der to see the CMA give the deal the green light.

The CMA has launched the sec­ond stage of its in­ves­ti­ga­tion into the £12bn merger, which would cre­ate a su­per­mar­ket ti­tan big­ger than Tesco, with rev­enues of £51bn and a net­work of 2,800 Sains­bury’s, Asda and Ar­gos stores.

Sains­bury’s and Asda claim that the gro­cery mar­ket has changed sig­nif­i­cantly in the last decade and is more com­pet­i­tive than ever, with the rise of dis­count for­mats, on­line gro­cery and food de­liv­ery busi­nesses. In other words, the CMA should in­clude Aldi and Lidl as com­pe­ti­tion when it makes its de­ci­sion.

The CMA’s in-depth in­ves­ti­ga­tion will con­sider whether the tie-up could lead to less choice, higher prices or worse qual­ity services.

It will also look at other is­sues, in­clud­ing those re­lat­ing to fuel, and gen­eral mer­chan­dise such as cloth­ing.

Sains­bury’s merger with

Asda would cre­ate a gen­eral mer­chan­dise arm that would leapfrog cur­rent mar­ket leader Dunelm. The group would also in­clude Ar­gos and Habi­tat.

The merged group would have 9.7 per cent share of the mar­ket ver­sus Dunelm’s 8.1 per cent, ac­cord­ing to data pub­lished in Glob­alData’s home­wares re­port.

Emily Stella, lead an­a­lyst for Glob­alData, be­lieves that Sains­bury’s/Asda will ben­e­fit from economies of scale and would be able to of­fer lower prices, al­low­ing it to match the prices at value mer­chan­dis­ers such as B&M and The Range.

It would also give the merged firm a com­pet­i­tive ad­van­tage over these harder-to-reach re­tail­ers.

Mean­while, mid-mar­ket play­ers such as Marks & Spencer and Next, and higher-priced home­wares spe­cial­ists, such as Dunelm and John Lewis, would also suf­fer.

Ms Stella said the new con­glom­er­ate is likely to gen­er­ate greater sales from Ar­gos post­merger, fur­ther el­e­vat­ing its home­wares share, with con­ces­sions open­ing within Asda stores.

This would be a sen­si­ble move given the cus­tomer cross­over be­tween Asda and Ar­gos in home­wares is greater than Sains­bury’s and Ar­gos (25 per cent ver­sus 15 per cent ac­cord­ing to Glob­alData research).

Ar­gos would also ben­e­fit from of­fer­ing a broader prod­uct range, in­clud­ing Sains­bury’s home, ASDA Ge­orge and Habi­tat.

Even if the CMA in­sists upon a se­vere store culling, this could pro­vide Sains­bury’s/Asda with a lu­cra­tive side­line away from food shop­ping.

The rev­e­la­tion raises the prospect of po­ten­tial wide­spread store sell-offs.

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