Supermarket sector speaks out against Sainsbury's-Asda merger

Grocers including Tesco, Morrisons, Lidl and Waitrose have warned antitrust regulators that the proposed £12bn merger between Asda and Sainsbury’s would severely affect the competition in the supermarket sector.

The Competition and Markets Authority has already warned that the tie-up posed a substantial risk to competition in 463 locations.

When it was first announced at the end of April, Sainsbury’s boss Mike Coupe said the merger would lead to £500m in cost savings and further investment to lower prices by around 10% on everyday items.

Tesco, in comments made at a CMA hearing, suggested that as Asda is the “price leader” on fuel prices, the merger could lead to higher petrol prices in areas where there was neither a Morrisons nor a Tesco petrol station.

Tesco, the market leader, which faced objections from suppliers when it acquired wholesale market leader Booker last year, said that “the proposed merger is a challenge in terms of economics, as there are few direct customer benefits", pointing out that Sainsbury’s and Asda are "not proposing to make any big operating cost savings, as they are going to keep the brands and the propositions separate". This, it suggested, meant that "nearly all of the announced efficiencies rely on harmonising costs and prices from suppliers and that this is a big ask when the merging parties do not appear to be able to offer suppliers very much in return".

Tesco proposed that the deal could not go ahead under existing precedent without "extensive remedies”.

One point raised by Morrisons was that as each of Sainsbury's and Asda are important suppliers of non-grocery products both nationally and locally, the merged entity could potentially raise prices in general merchandise to compete with other grocery retailers, such as discounters.

Morrisons also raised the issue of general lowered competition as the deal will result in around 60% of the market will be controlled by Tesco and the merged entity, which may lead to general price increases.

Waitrose made a similar point, saying the merger would increase the scale and buying power of the merging parties, the risk of coordination and would have an impact on suppliers. Waitrose claims this will lead to a homogeneous market, in which, customers will be offered a reduced range and an increase in prices.