The Asda-Sainsbury’s merger will raise competition questions and will, we strongly suspect, draw the attention of the UK’s competition watchdog, the Competition and Market’s Authority (CMA), who will conduct a review to assess the impact the merger may have on the market.
With the merger set to result in Asda and Sainsbury’s controlling 60% of the market, the CMA will need to ensure that any merger that does go ahead – if it’s even allowed to proceed in the first place – will not put consumers in a worse position in the long-run.
Consumers are being promised price cuts of 10%, but in the absence of any specificity as to the products that will be cut, the potential merger has raised a lot of eyebrows.
We assume that both Asda and Sainsbury’s are content that the merger will go ahead without being blocked or too heavily restricted by the CMA, or they wouldn’t have bothered pressing ahead with it. They will, we assume, have been intensely advised by their lawyers, and they must be confident that it will work.
But the big question is: what impact will the Asda-Sainsbury’s merger have on competition?
Competition in the supermarket industry has changed a lot in recent years with the likes of Aldi and Lidl breaking the norms of the ‘big four’ (Tesco, Sainsbury, Asda and Morrisons) that we have been used to for so long, which is great for consumers. The more competition there is, the harder the players in the market need to compete in most cases. Perhaps the Asda-Sainsbury’s merger plan is all about being able to better compete with the likes of Aldi and Lidl, but in any event, a controlling stake of 60% in the market that they could end up with is huge; and may well be too much for an oligopoly like the supermarket industry.
This is, in essence, half of the ‘big four’ merging together. Will this breach the Competition Act in any way?
That being said, if the benefit for consumers can be assured, the merger may not be a bad thing. But unless the promise of 10% price reductions can be properly specified as to what ‘products’ we’re talking about here, and unless such reductions can be appropriately guaranteed – which in itself appears incredibly hard to achieve – the CMA may have no alternative but to block the merger or put in place a huge list of restrictions and undertakings.
This is certainly a story to keep an eye on.