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.