The proposed merger between two of the U.K.’s biggest supermarkets, Asda and Sainsbury’s, is in jeopardy after a British regulator found “extensive competition concerns” in a preliminary investigation.
The Competition and Markets Authority (CMA) found the proposed deal could lead to “a worse experience for in-store and online shoppers across the UK through higher prices, a poorer shopping experience, and reductions in the range and quality of products offered”.
In April 2018 Sainsbury’s said it had reached a deal with U.S.-based Walmart to combine with its British subsidiary, in what would have created the country’s largest grocery chain, ahead of Tesco. Walmart, which has owned Asda since 1999, would retain 42% of the combined business and receive £3 billion (US$3.9 billion).
But the CMA has provisional concerns that the merger could lead to a substantial lessening of competition at both a national and local level.
It say that the combined impact means that people could lose out right across the U.K. and that the deal could also cost shoppers through reduced competition in particular areas where Sainsbury’s and Asda stores overlap.
Stuart McIntosh, chair of the independent inquiry group carrying out the investigation, said: “These are 2 of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day.
“We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK. We also have concerns that prices could rise at a large number of their petrol stations.
“These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out today. It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don’t lose out.”
As well as concerns for people shopping in their stores, the CMA is concerned the merger could drive up prices and reduce the quality of service for online customers.
The CMA has set out potential options for addressing its provisional concerns. These include blocking the deal or requiring the merging companies to sell off a significant number of stores and other assets – potentially including one of the Sainsbury’s or Asda brands – to recreate the competitive rivalry lost through the merger.
The CMA’s current view is that it is likely to be “difficult” for the companies to address the concerns it has identified.