UK supermarket merger on the brink of failure
Supermarkets are big business in the UK, with the food and groceries sector alone anticipated to grow 14.8% by 2023. Online commerce is becoming a real force, but for the vast majority of people across the country it is the supermarket which is vital.
One issue with the sector is that competition and choice is limited. There is only so much food and drink that people need, and there are only a select few supermarkets there to supply it. This situation looked to be reaching a head with the proposed £7.2bn merger of Sainsbury’s and Asda which control 15.8% and 15.3% of the market respectively.
The merger would therefore have led to the new supermarket group controlling almost a third of the market and being the single biggest entity, overtaking Tesco. Even at first sight this raised obvious questions about monopolisation and future competition.
And the latest news reports show that the UK competition regulator, the Competition and Markets Authority (CMA), agrees, citing “extensive concerns” that the sector might be undermined. In turn, this would lead to “higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK”.
As evidence, the CMA compiled a list of more than 600 areas where supermarket competition would be lessened, almost 300 areas where online competition would suffer, and more than 130 locations around the UK where petrol and diesel retailing could be reduced thanks to the merger. As can be proven by even the most cursory look at corporate history, big businesses put prices up in areas where there is nothing pushing back against them, to the detriment of the consumer.
With this in mind, it is understandable that the CMA does not quite believe that amalgamating, and therefore reducing, services across the country will be in the best interested of people who aren’t shareholders at Sainsbury’s or Asda.
After all, the CEO of Sainsbury’s, Mike Coupe, wasn’t caught singing “we’re in the money” after news of the merger broke because he thought prices were about to go down.
The CMA has proposed either an outright prohibition on the deal or a substantial package of divestiture which would see the merged group being forced to sell a hundred or more stores. Even if this was implemented – which would be a blow for Sainsbury’s – the CMA has stated that it believes such a divestment still carries a risk of being ineffective.
Barring some eleventh hour turnaround, this deal is dead to all intents and purposes – and it seems the market agrees.
Shares in Sainsbury’s fell a massive 15.5% on receipt of the news which is bad news for investors, including many pension and ethical funds which view the supermarket as both a good future bet and a company which benefits society.
WM Morrison, the fourth largest UK supermarket, also suffered a 5.4% fall in its share price as it had been seen as the most likely buyer of any stores divested by Sainsbury’s after the merger.
