Co-op forecourt store

Asda agreed to pay £600m for 132 Co-op forecourts in August

Asda’s £600m purchase of 132 petrol forecourt sites from Co-op Group could mean higher prices or less choice for motorists in 13 locations, according to the Competition & Markets Authority.

The watchdog has published the findings of its phase one investigation into the deal today and said it believes the deal “gives rise to a realistic prospect of a substantial lessening of competition” in the retail supply of road fuel in 11 local areas, and the retail supply of groceries at mid-sized stores in three local areas. One of the 13 locations, in Earlston, Scotland, raised concerns in relation to the supply of both fuel and groceries.

Asda had argued competition concerns would not arise as the deal would allow it to bring its low-cost pricing model to more customers. However the CMA rejected this argument and explained: “operating models and corporate strategies can change over time, and a permanent structural change to the market (such as the one brought about by a merger) can weaken the market forces that restrain firms from raising prices”.

“Groceries and fuel account for a large part of most household budgets. As living costs continue to rise, it’s particularly important deals that reduce competition among groceries and fuel suppliers don’t make the situation worse,” said CMA senior director of mergers Colin Raftery.

“While competition concerns don’t arise in relation to the vast majority of the 132 sites bought by Asda, there is a risk customers could face higher prices or worse services in a small number of areas where Asda would face insufficient competition in either groceries or fuel after the deal goes through.”

The CMA has given Asda five working days to offer legally binding proposals to address the competition concerns identified. The CMA would then have a further five working days to consider whether these proposals address its concerns, or if the case should be referred to an in-depth phase two investigation.

Asda co-owner Mohsin Issa said: “We note the findings of the CMA’s inquiry into our acquisition of 132 Co-op stores and their identification of 13 potential areas of competition concern. We look forward to working constructively with the CMA over the coming days as we consider their findings.

“We remain committed to our long-term strategy to build a convenience business and bring Asda’s great value in fuel and groceries to more customers and communities throughout the UK.”

The deal was first announced last August and the CMA ruling is in line with research carried out for The Grocer by CACI in September. Based on sites owned by Asda and the Issa brothers-owned EG Group, CACI found 12 to 16 of the 132 Co-op sites could be in breach of the CMA’s ‘four to three rule’, whereby a deal that reduced the number of sites in a local area that were owned by different operators from four to three would significantly lessen competition.