Sainsbury's-Asda Merger: what is currently happening?

Following the first announcement at the end of April last year of the proposed merger between Sainsbury’s and Asda, the CMA (Competition and Markets Authority) has initiated an extensive competitive assessment as to the potential implications of the tie-up between the two supermarket chains. If approved, this deal, would be one of the biggest in the UK retail industry. As a result, Sainsbury’s will become the new leader among the supermarket chains, combining its £5.9 billion value with Asda’s £7.3 billion. The whole transaction is expected to amount to a total of £12 billion. Unsurprisingly, however, this enormous merger raises a number of competition and regulatory concerns, as the new entity would potentially have the opportunity to abuse its dominance on the market. If this happens, there could be some serious detriments caused to consumers.

So, to approve or reject the deal, the CMA would have to assess various anti-competitive scenarios. For instance, the national competition authority will question whether the proposed merger will affect prices or even reduce choice for consumers. Furthermore, whilst it is also possible for the merged entity to be able to reduce its prices, the CMA should also think of the possible negative consequences of this. Essentially, as a national supermarket chain leader, the new retail giant will possess an extremely strong bargaining power. Consequently, its ability to reduce prices might simply be a direct result of an abuse of the suppliers. It has in fact been widely reported that suppliers are generally expected to end up being worse off due to Sainsbury’s and Asda’s promises to lower their prices following the merger. It is thus expected that the CMA will consider the possible lower margins for distributors. Nevertheless, this needs to be balanced against the potential of having more sales and revenue as a result of the increased consumer interest.

The outcome of the CMA’s competition investigations is expected at the end of April this year. In reality, however, despite the serious concerns that the merger might not happen, few expect the regulators to actually block it, as the new entity would still continue to face strong competition from its main rivals.