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Sainsbury’s-Asda deal could spark sale of hundreds of stores

September 28, 2018

The merger of Sainsbury’s and Asda could damage supermarket competition in 463 areas, the competition watchdog has warned.

Its initial findings raise the possibility that the grocery chains may have to sell hundreds of stores.

The Competition and Markets Authority said there could be be a “substantial lessening of competition” if they were “insufficiently constrained”.

Sainsbury’s and Asda said customers would be the merger’s “big winners”.

The CMA said: “At a local level, the parties’ stores overlap in several hundred local areas across the UK.

The findings were contained in the CMA’s phase one investigation into the £12bn merger, which took into account local competition from other rival supermarkets including Tesco and Morrisons, but not discounters Aldi and Lidl.

Last week the CMA launched the second phase of its investigation. Sainsbury’s and Asda have called on it to also include Aldi and Lidl in its calculations of risk to competition.

“The grocery market has changed significantly in the last decade and is more competitive than ever, with the rise of discount formats, online grocery and food delivery businesses,” Sainsbury’s and Asda said in a statement.

“We look forward to working with the CMA on the Phase 2 inquiry, where we expect it to conduct a full review of the market and take these changed market dynamics into consideration.”

The deal would create chain with revenues of £51bn a network of 2,800 Sainsbury’s, Asda and Argos stores.

Analysis: By Emma Simpson, Business Correspondent

So what to make of these initial findings from the CMA?

It’s used traditional methodology to look at how these two businesses – excluding convenience stores – overlap in individual catchment areas.

Crucially, this process excluded rivals like Aldi and Lidl. These two chains now account for a whopping 13% of the UK grocery market, and are continuing to grow.

The real test is what weighting they give to these discounters and other rivals when they really get stuck into vetting this mega merger.

We should get some more detail on how they’ll approach this in the next few weeks.

The CMA says the fact that the parties’ stores overlap in 463 local areas shouldn’t be viewed as a starting point.

But this very large number certainly highlights just why this controversial tie up is being heavily scrutinised.

Markets.com chief analyst, Neil Wilson, said it was a “given” that the CMA would “demand disposals” if it did approve the merger and that both Sainsbury’s and Asda would have factored that into their calculations.

“The question is how many stores they need to lose – too many could break the deal,” he said.

“The text from the CMA today suggests it may be less well disposed to this deal than the market had thought,” he added.

Shares in Sainsbury’s fell 2% following the report’s release before closing in positive territory.

Map of supermarket locations in the UK

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