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Sainsbury's and Asda fight back against CMA merger stance

UK supermarket groups Sainsbury’s and Asda have formally responded to the Competition and Markets Authority (CMA), which recently made provisional findings against the proposed merger between the two retailers.

Sainsbury’s and Asda both strongly disagree with the CMA’s position, saying the CMA’s analysis of the market contains significant errors. The retailers also argue that the CMA’s choice of threshold for identifying competition problems is too low.

The retailers have made a number of commitments in a bid to convince the CMA that the proposed merger would not hinder competition or lead to a worse deal for consumers. These include delivering £1bn worth of reduced prices every year within three years of a merger, capping the gross profit margin on fuel at Sainsbury’s and maintaining Asda’s current fuel price strategy, and paying small suppliers more quickly.

"We are trying to bring our businesses together so that we can help millions of customers make significant savings on their shopping and their fuel costs, two of their biggest regular outgoings,” say Sainsbury’s chief executive Mike Coupe and Asda chief executive Roger Burnley in a joint statement.

"We are committing to reducing prices by £1 billion per year by the third year which would reduce prices by around 10% on everyday items. We are happy to be held to account for delivering on this commitment and to have our performance independently reviewed and to publish this annually.

"We hope that the CMA will properly take account of the evidence we have presented and correct its errors. We have proposed a reasonable yet conservative remedy package and hope the CMA considers this so that we can deliver the cost savings for customers."

Analyst GlobalData says that market pressures mean Sainsbury’s has little choice but to fight on against the CMA decision, the final report on which is expected by 30 April this year.

“With Sainsbury’s hopes of creating a new grocery market leader by merging with Asda being dashed a month ago by the CMA’s provisional findings, it has left Sainsbury’s treading water in a period of turbulence for supermarkets, losing out over the Christmas period to rivals as the mid-market continues to be squeezed by the discounters,” says GlobalData retail analyst Thomas Brereton.

Sainsbury’s saw like-for-like sales drop by 1.1 per cent over the Christmas period, while rivals such as Tesco saw 2.2 per cent growth.

“Furthermore, details of Ocado and M&S’s £1.5bn online venture have been published since the latest from the CMA, introducing a new variable into online grocery competitiveness evaluation – another issue rightfully previously flagged by the CMA, given that over 75% of the online market is controlled by the Big Four, Ocado and Amazon.

“For Sainsbury’s to forge on – with what many see as an already lost battle – shows how pivotal Sainsbury’s feels consolidation at the top end of the grocery market is in order to stop long-term share decline at the Big Four, to use economies of scale and pressure on large suppliers to reduce shelf prices for shoppers,” says Brereton.

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