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Proposed Sainsbury's-Asda Merger At Risk

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The Competition and Markets Authority (CMA) has reported that the proposed merger between Sainsbury's and Asda could lead to a worse experience for in-store and online shoppers across the UK through higher prices, a poorer shopping experience, and reductions in the range and quality of products offered. It also has concerns that prices could rise at a large number of Sainsbury’s and Asda petrol stations.

The CMA has provisional concerns that the merger could lead to a substantial lessening of competition at both a national and local level. The combined impact means that people could lose out right across the UK and that the deal could also cost shoppers through reduced competition in particular areas where Sainsbury’s and Asda stores overlap.

Stuart McIntosh, chair of the independent inquiry group carrying out the investigation, said:

These are 2 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. We also have concerns that prices could rise at a large number of their petrol stations.

These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out today. It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don’t lose out.

As well as concerns for people shopping in their stores, the CMA is concerned the merger could drive up prices and reduce the quality of service for online customers.

It also believes the deal could lead to inflated fuel costs at more than 100 locations where Sainsbury’s and Asda petrol stations overlap.

The CMA has set out potential options for addressing its provisional concerns. These 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.

The CMA now welcomes responses from interested parties to its provisional findings by 13 March 2019 and its notice of possible remedies by 6 March 2019. The CMA’s final report will be issued by 30 April 2019.

Sainsbury's has issued the following statement regarding the CMA's provisional findings into the proposed merger between J Sainsbury plc and Asda Group Limited:

"We fundamentally disagree with the provisional findings. These misunderstand how people shop in the UK today and the intensity of competition in the grocery market. The CMA has moved the goalposts and its analysis is inconsistent with comparable cases. 

"Combining Sainsbury's and Asda would create significant cost savings which would allow us to lower prices. Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits. 

"We are surprised that the CMA would choose to reject the opportunity to put money directly into customers' pockets, particularly at this time of economic uncertainty.

"We will be working to understand the rationale behind these findings and will continue to make our case in the coming weeks."

The CMA has been criticised by judges over its handling of the proposed Sainsbury's-ASDA merger.  Lord Justice Roth and two other judges have said the CMA had made 'unreasonable and unfair' demands of the supermarket chains, expecting them to respond to 400 pages of complex market analysis in just seven working days.

The grocers launched a judicial review after the CMA refused their application for an 11-day extension so that they could respond to the material provided to them. 

Source : Insight DIY Team, CMA and Sainsbury's Press Release

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20 February 2019

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