UK Competition Authority Blocks Sainsbury's-Asda Merger
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April 26, 2019
UK Competition Authority Blocks Sainsbury’s-Asda Merger
On April 25, the UK’s Competition and Markets Authority (CMA) blocked the planned merger of
Sainsbury’s and Asda.
• Sainsbury’s is likely to be under pressure to outline a new way forward that includes a
plan to improve performance. Sainsbury’s has been the weakest performing of the major
grocery retailers.
• The merger would have created a highly concentrated UK grocery market, with two
companies holding an aggregate share of nearly 60%.
• The CMA concluded that the merger would result in “price rises, reductions in the quality
and range of products available, or a poorer overall shopping experience.”
On April 25, 2019, the CMA blocked the planned merger of Sainsbury’s and Walmart-owned
Asda, which are, respectively, the UK’s second- and third-largest grocery retailers. The
combination would have propelled the merged company to first place in the UK grocery
market, leapfrogging Tesco, while also making it the UK’s biggest retailer overall.
Following the CMA’s announcement, Sainsbury’s said the parties had mutually agreed to
terminate the transaction.
Sainsbury’s reports preliminary FY19 results on May 1, and is likely to be under pressure to
outline a new way forward that includes a plan to improve its performance:
• Sainsbury’s has been the weakest performing of the UK’s “Big Four” grocery retailers.
• The company has been stripping out costs by cutting in-store staff but the impact appears
to be risking its longstanding differentiated position in the grocery market.
The merger would also have resulted in a highly concentrated UK grocery market: At their
current scale, Sainsbury’s and Asda would together control 30.7% of the UK grocery market,
according to Kantar Worldpanel data. Sainsbury’s-Asda and current market leader Tesco would
in total have controlled almost 60% of the UK grocery market, creating an exceptionally
Deborah Weinswig, CEO and Founder, Coresight Research 1
deborahweinswig@coresight.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016
Copyright © 2019 Coresight Research. All rights reserved.
April 26, 2019 consolidated market. This dramatic reduction in competition is what underpins the CMA’s findings. The CMA concluded: UK shoppers and motorists would be worse off if Sainsbury’s and Asda…were to merge. This is due to expected price rises, reductions in the quality and range of products available, or a poorer overall shopping experience. The CMA’s investigation found that, as well as affecting in-store customers, the merger would result in increased prices and reduced quality of service, such as fewer delivery options, when shopping online. Furthermore, it would lead to motorists paying more at over 125 locations where Sainsbury’s and Asda petrol stations are located close together. Referring to a pledge by the companies to lower prices by £1 billion per year by the third year after the merger, Sainsbury's CEO Mike Coupe said: The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers' pockets. Sainsbury's is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible. Judith McKenna, CEO of Walmart International, said: While we’re disappointed by the CMA’s final report and conclusions, our focus now is continuing to position Asda as a strong UK retailer delivering for customers. Walmart will ensure Asda has the resources it needs to achieve that. Sainsbury’s-Asda Would Have Become a Major Nongrocery Retailer The merger would have made Sainsbury’s-Asda the UK’s biggest retailer, its biggest grocery retailer, and, by our estimates, probably its second-largest retailer of nongrocery products, behind Amazon. We estimate the new combined entity would have seen total sales of around £9-10 billion across apparel and general merchandise. In nonfood categories, the Sainsbury’s-Asda combination would have brought together the variety store Argos, which was acquired by Sainsbury’s in 2016; Asda’s highly successful George apparel brand; Sainsbury’s newer but high-growth Tu clothing brand; and, Asda’s and Sainsbury’s own general merchandise sales. It would have allowed the company to sell those products through thousands of stores across multiple formats. Deborah Weinswig, CEO and Founder, Coresight Research 2 deborahweinswig@coresight.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2019 Coresight Research. All rights reserved.
April 26, 2019 Figure 1. The Potential Sainsbury’s-Asda Network of Brands and Fulfillment Scales are indicative only. Source: Coresight Research Appendix: What the CMA Said Below, we include extracts from the CMA’s final report. Supermarkets: Where the merger lessens competition in local areas representing a significant proportion of the Parties’ overall supermarkets, the merger may result in price rises (and/or a worsening of other aspects) across all the parties’ stores. The effect could be a worse deal for customers in each local area where one or more of the parties is present (that is, including areas where they do not overlap). Convenience Stores: For Sainsbury’s, we found that the merger would not give rise to an incentive for it to raise prices across all of its convenience stores, which charge different prices to Sainsbury’s supermarkets. This is because the local areas where we have found competition concerns regarding Sainsbury’s convenience stores represent a small part of Sainsbury’s overall convenience store estate. For Asda, the situation is different because its convenience stores charge the same prices as its supermarkets. Our finding that the merger would result in an SLC [substantial lessening of competition] in each local area where Asda’s supermarkets are present through a degradation of PQRS [price, quality, range and service] which could include a national price rise, would also mean that the Merger would result in an SLC in each local area where Asda’s convenience stores are present. Online Groceries: Only three online delivered groceries retailers (Tesco, Sainsbury’s, Asda) have a near- national presence and many online delivered groceries customers would have a restricted choice following the merger: sometimes limited to only the parties and Tesco. We have found that the merger would give rise to an incentive to degrade PQRS [price, quality, range and service] across Asda’s online delivered groceries offer, resulting in an SLC [substantial lessening of competition] in each local area across the country where Asda is present. Deborah Weinswig, CEO and Founder, Coresight Research 3 deborahweinswig@coresight.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2019 Coresight Research. All rights reserved.
April 26, 2019 Deborah Weinswig, CPA CEO and Founder Coresight Research New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 deborahweinswig@coresight.com John Mercer Head of Global Research US: 1359 Broadway, 18th Floor New York, NY 10018 UK: 242-246 Marylebone Road London, NW1 6JQ Hong Kong: 2/F, LiFung Tower 888 Cheung Sha Wan Road, Kowloon China: 627 Huaihai Middle Road Huangpu District Shanghai 200000 India: K-Tech Innovation Hub 3rd Floor, Plama Center, Bejai Kapikad Road Mangaluru 575004 Coresight.com Deborah Weinswig, CEO and Founder, Coresight Research 4 deborahweinswig@coresight.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2019 Coresight Research. All rights reserved.
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