sainsbury's - asda merger

Competition chiefs will include discounters Aldi and Lidl - as well as online giant Amazon - in their probe into the proposed takeover between Asda and Sainsbury’s, it emerged today.

The Competition and Markets Authority (CMA) declared the “growing level and impact” of the German discounters, as well as Amazon’s ever more powerful online empire, had changed the retail landscape, alongside other factors such as the boom in bargain stores like B&M.

The move appears to increase the chances of the merger going ahead without a huge disposal of stores.

Last month the CMA announced the Sainsbury’s-Asda merger threatened competition in 463 locations.

However, the move to include Aldi and Lidl, and other competitors, in its more detailed Phase 2 investigation has led some experts to suggest the number of stores it might have to sell off could be down to as little as a few dozen.

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Sainsbury’s and Asda have both argued that discounters and online grocery should be included in the CMA’s probe.

“We will explore the way in which store size, distance between stores and the presence of different brands, including retailers Aldi and Lidl, impact on the competition between grocery stores,” the CMA said in an Issues Statement.

“We are likely to consider the following factors in particular how many grocery retailers have plans to open new grocery stores … this is especially relevant to brands whose store estates have expanded in recent years, particularly Aldi and Lidl.”

The statement said the probe would also look at the competition from online grocery.

“A number of online-only retailers have emerged or expanded in recent years, such as Ocado and Amazon,” it said. “We will assess the likely constraint of these online-only retailers on the parties and how this might evolve in the near future.”

The CMA has indicated that, as well as the discounters and Amazon, the probe will look more widely at the spread of new competitors, with bargain stores such as B&M, Home Bargains and Iceland in the mix.

It also said its probe would consider the impact on suppliers but that a reduction in the profitability of suppliers on its own would not give rise to a “serious lessening of competition”.

“We will only be concerned by an increase in the buyer power of the merged company to the extent that it may distort competition in the groceries market and result in adverse effects on end customers,” said the document.

“The CMA will look at whether the merged company could use its increased buyer power to squeeze suppliers and if this could have a potential knock-on effect for shoppers,” added Stuart McIntosh, chair of the independent inquiry group carrying out the in-depth investigation.

“This would be due to suppliers being less able to innovate or having to charge higher prices to other stores that compete with the combined Sainsbury’s-Asda.”

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Sainsbury’s CEO Mike Coupe has insisted innovation from smaller suppliers is the “lifeblood” of the company and denied it has plans to squeeze them.

Sainsbury’s says of its 1,600 suppliers that the top 50 make up more than 50% of its business. Coupe has said it is on those that Sainsbury’s intends to target its plans for slashing costs.

A source said; “Today’s recognition that Aldi and Lidl, as well as other competitors, will be included in the CMA’s investigation will be greeted positively by Sainsbury’s and Asda.

“They also argue that it is unrealistic to regard online as a separate entity so it’s also good news that the CMA will look at Amazon.

“On the question of suppliers, Sainsbury’s and Asda will argue that these are major international companies, the likes of Coca Cola and Unilever. They have stressed they are not talking about putting the squeeze on small UK companies’ sources.”

A spokeswoman for Sainsbury’s and Asda said: “We recognise that this is an important merger and welcome the detailed and thorough review by the CMA. We look forward to working constructively with the CMA and Inquiry panel during this second phase of the process and to making our case that the proposed merger is pro-competitive.

“Customers will be the big winners from the combination. By bringing our two businesses together, we will be able to invest further in more convenient ways of shopping, while lowering prices and reducing the cost of living for millions of UK households.”

The CMA said it expected to issue its provisional findings early next year, ahead of the statutory deadline for its final decision on 5 March.