UK’s competition authority blocks Sainsbury’s-Asda merger

The UK’s Competition and Markets Authority (CMA) has blocked the proposed merger between supermarkets Sainsbury’s and Asda, citing concerns over price monopolies that it claimed would leave consumers out of pocket.

The move means that the UK’s second and third largest supermarket chains will now no longer combine – a blow, in particular, to Sainsbury’s aspirations of closing the gap between it and the UK’s largest retailer, Tesco. Sainsbury’s had previously acquired the electronics and homewares retailer Argos in order to bolster its in-store offering, attracting more consumers into its larger stores with the prospect of click-and-collect convenience.

According to Kantar Worldpanel, Tesco accounts for 27.4% of the UK grocery market, while Sainsbury’s and Asda each have around 15% share.

Last year, when the announcement of a merger was made, Sainsbury’s was the larger of the two supermarkets; but in Kantar’s most recent grocery share tracker, Asda overtook its rival to reach 15.4% of total share. The next largest retailer is Morrisons, on 10.3% share.

‘Shoppers worse off’ in a merge scenario

The CMA found multiple problems in the proposed merger that it was unable to move beyond. In its final report, it claimed that Sainsbury’s and Asda’s combination would lead to higher prices online and in store, higher prices at petrol forecourts, reductions in the quality and range of products available, fewer online delivery options for consumers, and an overall weaker customer experience.

In a damning report that put an end to the merger, it concluded that “UK shoppers and motorists would be worse off if Sainsbury’s and Asda… were to merge”.

Stuart McIntosh, chair of the inquiry group that led the investigation into the merger, said: “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 two retailers had previously agreed to binding price cuts, and had offered to offload between 125 and 150 of their supermarkets in order to appease anti-trust concerns.

But ultimately the CMA’s reservations ran deeper than previously first, and speculation that the authority might cut off the deal have come to fruition.

Responding to the news, Sainsbury’s CEO Mike Coupe claimed the CMA was “effectively taking £1 billion out of customers’ pockets” – a reference to the extent of price savings that Sainsbury’s and Asda claim they would have been able to deliver.

Judith McKenna, CEO of Walmart, which owns Asda, continued: “We have been clear from the beginning of the proposed merger about two things. Firstly, that retail is rapidly changing and standing still is not an option, and secondly that we will always ensure our international markets are strong local businesses powered by Walmart.

“While we’re disappointed by the CMA’s final report and conclusions, our focus now is continuing to position Asda as a strong UK retailer delivering for customers. Walmart will ensure Asda has the resources it needs to achieve that.”

Asda CEO Roger Burnley maintained that, despite the outcome, pursuing a merger with Sainsbury’s was the right thing to do.

“Asda’s DNA is delivering low prices for hard working families and that will never change,” Burnley said. “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.”