CMA says a merger would leave shoppers worse off

CMA says a merger would leave shoppers worse off

The UK's competition watchdog has blocked the proposed merger between supermarket giants Sainsbury's and Asda after months of consultations, on the grounds the deal would push up prices for consumers.

Plans to amalgamate the two retailers, among the UK's co-called big four supermarkets, first surfaced in April last year in what would have amounted to a GBP7.3bn deal (US$9.4bn at today's rate). 

Today (25 April), after a year of conducting an extensive review into the proposal, including inviting rivals, industry players and other institutions to have their say on the plans, the Competition and Markets Authority has rejected the transaction, claiming it would make UK shoppers and motorists alike worse off. The combination would also reduce the quality and range of goods available and lead to a "poorer overall shopping experience" for consumers, the CMA argued in a statement.

Stuart McIntosh, chair of the inquiry group, said: "It's our responsibility to protect the millions of people who shop at Sainsbury's and Asda every week. We have concluded that there is no effective way of addressing our concerns, other than to block the merger."

As well as in-store shoppers, the CMA investigation concluded a tie-up with Asda, which is owned by US retailer Walmart, would lead to fewer delivery options for online customers and see motorists paying more for fuel at over 125 close-proximity petrol stations.

The CMA said it also took into consideration the increased competition from discount stores Aldi and Lidl in coming to its final decision. "Whilst the panel carefully considered these industry developments, they did not allay its serious competition concerns about the merger," the statement read.

In presenting their case over the merger, Sainsbury's and Asda had said they would cut some prices if a deal went through, and, as the probability rose that a deal would be thrown out, then proposed selling off stores. "However, detailed analysis of the impact of the deal clearly showed that, overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts," the CMA noted.

Sainsbury's CEO Mike Coupe added the CMA is "effectively taking GBP1bn out of customers' pockets" by rejecting the merger proposal. 

"The specific reason for wanting to merge was to lower prices for customers," he said in a filing submitted to the London Stock Exchange. "The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market." 

Walmart issued its own statement following the announcement, and said "despite the clear customer benefits of the proposed merger", itself, Asda, and Sainsbury's "have mutually agreed to terminate the transaction". 

Judith McKenna, the chief executive of Walmart International, said: "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."