Asda and Sainsbury’s merger blocked due to price rise concerns

25 April 2019

The competition regulator the Competition and Markets Authority (CMA) has announced it will not allow the intended merger of supermarkets Asda and Sainsbury’s as it would lead to price increases.

The CMA says it is blocking the merger due to concerns over price rises, reduction in the quality and range of products available and a poorer overall shopping experience.

The final conclusions of the investigation, after a preliminary report found the same, say the deal would result in “substantial lessening of competition at both a national and local level.”

The supermarkets came out fighting in response to the initial report, saying they disagreed strongly with its findings, and vowed to cut prices by 10%.

However, it would appear this had little effect as the merger has been scuppered regardless. 

Stuart McIntosh, chair of the inquiry group, says: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week.

“Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”

The regulator found that instore and online customers would be negatively affected by increasing prices and reduced quality of service.

It also found that it would lead to motorists paying more for fuel as there are 125 locations where Asda and Sainsbury’s have competing petrol stations across the UK.

Tom Stevenson investment director from Fidelity Personal Investing’s share dealing service comments: “Mike Coupe, Sainsbury’s chastened boss, will put a brave face on things as he announces results next week but this is a blow to his reputation and the company’s prospects.

“Sainsbury’s will need to deliver a convincing plan to rebuild sales and profits if it is to avoid further weakness in its battered shares, although these have already largely priced in today’s decision by the CMA.

“The stock has not been lower since the late 1980s. Sainsbury is the sector’s laggard today, struggling to keep up with recovering Tesco and the German discounters Aldi and Lidl, which have won over the middle classes with their narrow but cheap ranges.”

Supermarkets’ response

In response to the CMA’s final decision both supermarkets have commented on their disappointment that the merger will no longer be going ahead.

Roger Burnley, chief executive of Asda, comments: “Asda’s DNA is delivering low prices for hard working families and that will never change. We were right to explore the potential merger with Sainsbury’s, which would have delivered great benefits for customers and supported the long term, sustainable success of our business.

"We’re disappointed with their findings but will continue to find ways to put money back into customer’s pockets and deliver great quality and service in an ever changing and demanding market.

"I have always been hugely aware that the last year has been an unsettling time for all of our colleagues and am immensely grateful for their commitment and dedication during that time. Our focus is now on the most important job we all have – delivering for our customers.”

Sainsbury’s chief executive, Mike Coupe, adds: “The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market.

"The CMA is today effectively taking £1 billion out of customers’ pockets.

“Sainsbury’s is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.”

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