Watchdog threatens to block £14billion Sainsbury’s deal

Mega-merger with Asda to be stopped if shoppers are worse off

THE £14bn merger of Sainsbury’s and Asda will be blocked if it leaves shoppers worse off, regulators have warned.

Launching an investigation into the proposed deal, the Competition and Markets Authority (CMA) said that it will examine its possible impact on prices, customer service, choice and suppliers.

And in a sign the inquiry will look beyond the sale of food and drink, the watchdog noted that both companies are also big players in the fuel, electricals, toys and clothing markets.

‘That broadens the scope of the investigation,’ said Clive Black, head of research at investment group Shore Capital.

Sainsbury’s and Asda are now understood to be preparing to sell hundreds of stores to appease the watchdog and ensure the deal goes through.

It is thought as many as 300 stores could go in areas where they raise competition concerns.

CMA chief executive Andrea Coscelli 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 to find out if this merger could lead to higher prices or a worse quality of service for shoppers and will not allow it unless any concerns we find are fully dealt with.’

The planned Sainsbury’s-Asda merger would create the largest supermarket in the UK with annual sales of £ 51bn and 2,800 stores.

The tie-up was announced earlier this year as traditional grocers such as Sainsbury’s, Asda, Tesco and Morrisons face an onslaught from German discounters Aldi and Lidl.

The merged group is targeting £500m worth of cost savings by using its buying power to get better deals from suppliers. Sainsbury’s chief executive Mike Coupe has already vowed to put the squeeze on its biggest suppliers such as Marmite maker Unilever, and Coca-Cola.

And the grocer has admitted it will slash management jobs after it joins forces with Asda.

But Neil Wilson, chief market analyst at trading firm Markets, said much of the savings would come from selling stores.

He said: ‘They’re not going to make those kinds of savings on sourcing alone.’

The CMA said it will look at whether the merged company ‘could use its increased buyer power to squeeze suppliers and whether this could have potential knock-on effects for shoppers’.

Coupe insists that the deal will enable Sainsbury’s to slash 10pc off the price of everyday goods as the chain gets a better deal from suppliers.

But the CMA is concerned that the pressure on suppliers – from giants such as Unilever and Nestle towards milk producers and farmers – will damage them so much that it harms shoppers in the long run.

The watchdog will also look at whether these suppliers will be forced to charge rival stores higher prices to make up for the lower prices they charge Sainsbury’s and Asda.

Sainsbury’s said: ‘The combination of Sainsbury’s and Asda will benefit consumers and the wider UK economy. We are confident in our case and we look forward to continuing to work closely with the CMA.’