Food and drink companies have told the CMA the proposed merger between Sainsbury’s and Asda would lead to reduced choice for customers, less innovation and a huge squeeze on suppliers, which could put some out of business.
The authority today published a summary of the preliminary responses it has received ahead of a fully fledged probe into the merger, expected to start soon.
It is understood the authority received around 30 responses from individual accompanies and a raft of trade bodies, most of which are believed to have been hostile to the deal.
The CMA has agreed to keep the responses confidential but it said respondents had “raised concerns that the proposed merger would provide the combined company with increased buyer power, which they said would allow it to negotiate lower prices with suppliers and/or to pass on excessive risks and unexpected or disproportionate costs to suppliers.”
The impact risked leading to “reduced margins for suppliers, leading to suppliers being squeezed, leaving them less able to innovate, having to reduce the quality of their products, lowering the standards applied in their supply chain or exiting the market completely, whether due to financial failure or finding more attractive conditions in other national markets”.
As a knock-on impact of the merger, suppliers could have to charge higher prices to smaller retailers to recoup lost profits due to Sainsbury’s and Asda coming together, or the deal could result in them “prioritising supply to the combined company over smaller retailers, leaving those retailers less able to compete”, the summary added.
The document also revealed fears the deal might particularly put smaller suppliers under the cosh, while “other respondents suggested that branded suppliers could be particularly affected, on the basis that the parties would have an incentive to favour own-label products”.
As well as fears over the squeeze on suppliers, the CMA said a raft of responses had warned of the impact on competition for consumers.
“A number of submissions raised concerns about the impact of the proposed merger at the national level, on the belief that it would lead to increased concentration in the market and fewer national players, with two companies – Tesco and the combined Sainsbury’s-Asda – holding high market shares,” it said. “Some respondents suggested that this could give rise to higher prices, reduced choice, or a loss of innovation within the supply of groceries.
“Other respondents raised concerns on competition at the local level (and, in some cases, within specific local areas in which the parties’ stores overlap). Several submissions raised concerns in relation to the supply of online groceries, where some respondents suggested that there may be limited alternative options for customers, particularly in certain areas of the country.”
MPs are due to quiz the bosses of Sainsbury’s and Asda, Mike Coupe and Roger Burnley, on Wednesday, amid concern on both sides of the House of Commons about the impact of the deal on jobs and the threat to suppliers.