Sainsbury’s and Asda will be investigated further by the Competition & Markets Authority (CMA) for the effect their £15bn merger will have on competition in the UK.

The CMA’s concerns are mainly around a lack of choice that consumers would have for supermarket shopping, including for fuel and general merchandise such as clothing. The investigation, which opened in August 2018, hinges on whether alternative grocers would be able to compete with a combined Sainsbury’s-Asda company.

The CMA said:

“”A number of submissions raised concerns about the impact of the proposed merger at the national level, on the belief that it would lead to increased concentration in the market and fewer national players, with two companies – Tesco and the combined Sainsbury’s/Asda – holding high market shares.

“”Some respondents suggested that this could give rise to higher prices, reduced choice, or a loss of innovation within the supply of groceries.”

Sainsbury’s-Asda investigation depends on competitor definition

Patrick O’Brien, Retail Research Director at GlobalData, told Verdict:

“In the past it’s been very clear that it’s [the CMA] divided supermarkets into different sizes – Asda and Sainsbury’s are in the one-stop-shop category, supermarkets large enough where the CMA deems one can do all their shopping in one go. In the past it hasn’t included Aldi and Lidl as competitors in that space, but Sainsbury’s and Asda will be arguing they are competitors because they lose market share to them.

“It all depends on how the CMA defines them this time round, but previously they would not have included most Aldis and Lidls as competitors, in which case they would decide that the merger will in a lot of cases mean that competition in those places suffers.

“But if they do include Aldi and Lidl as competitors for one-stop-shopping then it makes it much more likely that the CMA will pass the merger without asking Sainsbury’s and Asda to divest a large number of stores.

“Then it all depends on how many stores the CMA demands are sold to another grocer to let the deal go through. If it’s too many then the deal won’t happen, but if it’s a low number then it will.

“It really holds on how the CMA decides to view Aldi and Lidl.”

Ian Giles, competition partner at law firm Norton Rose Fulbright told Verdict:

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“The key question remains the extent to which the CMA identifies any national competition concerns, would hamper clearance prospects, or whether it is satisfied with local divestments.

“This development was expected – the parties had asked to fast track the deal to an in-depth Phase 2 review, given the complexities of the analysis, and recognition that they could not secure a clearance in Phase 1.

“It means the review period will stretch into Q1 2019, that third parties will have more extensive opportunities to comment on the deal, and that the Competition and Markets Authority (CMA) will conduct more detailed economic and other assessments.”

Grocers’ market share compared

Discount or budget grocery stores Aldi and Lidl hold 12% of the market share.

Between the big four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons, Tesco leads with 28% of the market share, according to Statista.

Sainsburys and Asda have 16% and 15% of the market share respectively. But the merger could mean a combined market share of 31.4%, with 2,800 stores, making them the UK’s biggest retail chain.