Sainsburys insists deal will mean lower prices for consumers

Sainsbury's insists deal will mean lower prices for consumers

UK food manufacturers have welcomed the provisional verdict from the country's anti-trust watchdog that the planned combination of Sainsbury's and Asda would reduce competition in the sector.

Earlier today, The Competition and Markets Authority (CMA) said the planned transaction could lead to a "poorer shopping experience" for in-store and online shoppers, as well as a reduction in the range and quality of products on offer.

Sainsbury's and Asda, two of the UK's 'big four' grocers, criticised the report and said they would continue to "press our case in the coming weeks".

However, The Food and Drink Federation, the industry association representing food and soft-drink manufacturers doing business in the UK, embraced the decision. When Sainsbury's and Asda announced their planned deal last April, industry watchers said suppliers would at least react in a guarded fashion, with some concerned about the possible buying power of the enlarged organisation.

"We are pleased to see that the CMA findings reflect the concerns of FDF members that the proposed merger would cause a substantial lessening of competition at both a national and local level. The CMA has correctly identified a number of issues with the proposed merger and with an ever more consolidated grocery market. The CMA should now proceed to apply the appropriate remedy," a spokesperson for the FDF said.

Mike Coupe, the Sainsbury's chief executive, hit out at the CMA's findings. Speaking to the BBC, Coupe said the retailer was "very disappointed" and accused the CMA of having "fundamentally moved the goalposts and, not only that, they've changed the shape of the ball and chosen a completely different playing field".

He added: "This is a massive problem for any business that might be considering a transaction in the UK because, in the end, you have to look at precedent transactions ... and if you don't apply the same rules it makes it almost impossible to predict any outcome.

"And, from a customer point of view, in the end the customers are the main losers. We believe we'd be able to lower prices in the UK market. We've made that case very strongly to the CMA and they completely dismissed our evidence." 

Sainsbury's GBP7.3bn (US$9.5bn) merger with Walmart-owned Asda was first proposed in April last year but was then referred for investigation by the CMA to ascertain whether such a deal would reduce competition in the UK grocery market.

In a statement today, Stuart McIntosh, chair of the independent inquiry group for the investigation at the CMA, said: "These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day. We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK."

The CMA is inviting responses from interested parties into its provisional findings by 13 March and its notice of possible remedies by 6 March.  

Meanwhile, the market authority has outlined potential options to address its concerns. They would include blocking the deal or "requiring the merging companies to sell off a significant number of stores and other assets – potentially including one of the Sainsbury's or Asda brands – to recreate the competitive rivalry lost through the merger". 

"The CMA's current view is that it is likely to be difficult for the companies to address the concerns it has identified," it noted. 

Speaking to the BBC, Coupe said the retailer would "make very strong representations" to the CMA "on the inaccuracy and lack of objectivity in their analysis".

He added: "We will fight right the way through the process. We have throughout because ultimately we believe it is great news for customers. In the first round, the CMA found 463 local areas of concern. The second round, when they added the discounters to the market, they found 629 areas of concern. That is just absurd."

Coupe argued the CMA had changed the rules against which the watchdog had judged previous transactions in the sector. "They have applied a set of criteria which are unprecedented in the UK and indeed, I would argue, unprecedented in the world. In the end, they're taking money out of customers' pockets."

Equity analysts at investment bank Sanford Bernstein said there was "a 50% chance" Sainsbury's could take the case to court over the CMA's methodology "and a 50% chance that they will abandon the case altogether".

In a note to clients, they added: "To reiterate what we have said before: even if they do go to court, it could take some time to settle and it would not necessarily lead to a successful outcome for Sainsbury's."

Data and analytics firm GlobalData said the transaction "looks doomed". Patrick O'Brien, UK retail research director for GlobalData. said the CMA's provisional findings "have devastated any prospect of the merger going ahead".

He added: "Rather than just point to a number of stores that would need to be divested as had been expected, the CMA has raised concerns about the tie-up in just about every conceivable way – on national and local grounds, on store and online competition concerns and on major stores, convenience stores and petrol stations. The CMA even outlined how difficult the required level of divestments needed would be to action.

"It seems that the CMA didn't buy the central strategy of the deal: that it would benefit consumers by using their combined might to negotiate down major suppliers and pass on much of the benefit to shoppers in reduced prices."