The Sainsbury & # 39; s-Asda megafusion can be blocked by the watchdog, but what are his concerns?

<pre><pre>The Sainsbury & # 39; s-Asda megafusion can be blocked by the watchdog, but what are his concerns?

After having gathered information for four months, the competition watchdog pushed the button on his probe in the proposed £ 13 billion merger between Sainsbury & # 39; s and Walmart owned by Asda – the second and third largest supermarkets in the UK.

If the milestone continues, it will create a supermarket sample that is larger than the current market leader Tesco, with 330,000 employees, 2,800 stores and a turnover of around £ 51 billion.

The bold move comes amid a wave of consolidation in the pressed supermarket sector.

Companies such as Tesco and Booker and Co-op and Nisa have joined forces to ward off the threat from the discounters Aldi and Lidl, as well as the ubiquitous e-commerce terror Amazon, which has signed a delivery deal with Morrisons and has picked up Wholefoods .

Asda, owned by the American giant Walmart, has stayed behind for several years

Asda, owned by the American giant Walmart, has stayed behind for several years

Sainsbury & # 39; s lifted the lid on its proposed mile-out merger with Big Four rival Asda in May

Sainsbury & # 39; s, who is at the helm as Walmart withdraws from the UK, claims that the groceries will find net synergies of around £ 350 million because they harmonize procurement teams among their top suppliers.

It has committed, albeit vaguely, to use this to lower prices for customers, which is to say it will help to compete with the often cheaper disturbers.

Indeed, the new supermarket double act -Sainsbury's chief Mike Coupe and Asda boss Roger Burnley – have become lyrical about the plan, claiming that it will make the two companies, and their respective employees, future-proof, since the market is at top speed transforms.

Investors also appear to be satisfied – the share price of the Sainsbury share has increased from 270 pence per share to around 340 as news about the deal emerged.

But the deal also has its critics, and the competition watchdog, the Competition and Markets Authority (CMA), is not about to merge two of the Big Four supermarkets – one hopes – without first taking over the details and consequences, not only for customers, but also for suppliers and other retailers.

Do not try to guess the CMA

There is a certain degree of unpredictability that makes the CMA a difficult institution to read.

Cases that were expected to be long and complex, such as the investigation into the acquisition of wholesaler Booker by Tesco, seemed to go through the process with unconditional approval – a decision that was widely surprised.

Conversely, it played hardball with Poundland when it married 99p stores and took the deal to an in-depth Phase 2 study based on a few seemingly minor issues.

The process reduced the finances of 99p stores and ensured that Poundland had to sell 60 stores.

Will it push up prices? Will this lead to less choice for customers or worse service?

And the often inscrutable institution will not only make a trade-off between the impact of the merger on the supermarket market. The proposed marriage also raises competition concerns about fuel, fashion, toys and general mechanics.

CMA boss Andrea Coscelli took a particularly tough stance, saying: "About £ 190 billion is spent every year on food and groceries in the UK, so it's vital to know if the millions people who shop in supermarkets can lose it as a result of this deal.

& # 39; We will conduct a thorough investigation to find out if [it] could lead to higher prices or poorer quality of service to the shoppers and will not allow it to continue unless there is some concern that we have in full. & # 39;

But what will the CMA look for, and what can Sainsbury & # 39; s and Asda change before the future gives the go-ahead together?

Will customers have changed briefly?

It is clear that one of the CMA's priorities will be to find out whether two brands that operate from one board can compete with shared purchases, and if this does not lead to higher prices and less choice in the long term.

Coupe does not argue, as per its promise to use buying synergies to reduce prices on some common lines by as much as 10 percent.

However, there is very little detail on how, where and when these cuts will be applied, with some industry watchers not convinced that they will become reality at all.

The CMA can look for clarification and guarantees here before taking the word from Coupe that the extended group will use its new capabilities for the better.

Sainsbury & # 39; s chief executive Mike Coupe (photo) has pledged to lower prices for shoppers

Sainsbury & # 39; s chief executive Mike Coupe (photo) has pledged to lower prices for shoppers

Sainsbury & # 39; s chief executive Mike Coupe (photo) has pledged to lower prices for shoppers

Will some stores change owners?

The watchdog usually watches how deals can influence competition at the local level. So in areas where Sainsbury & # 39; s Asda stores are dominant, perhaps the CMA to force the sale of a store to a suitable rival.

According to an analysis by The Times, there are 300 areas where the watchdog is concerned that local competition and the shopper's choice are at risk.

Coupe has previously claimed that 138 of Sainsbury's 644 stores are within a mile of an Asda, but only five of the 138 have no other supermarket brand, not even within a mile.

But the exact number of stores in the balance also depends on whether or not the watchdog classifies Aldi and Lidl as competition, just as (for the first time) in its investigation into the merger between Tesco and Booker.

Fast-growing Aldi wants to have 1000 stores in 2022 and have opened 76 new stores in 2017

Fast-growing Aldi wants to have 1000 stores in 2022 and have opened 76 new stores in 2017

Fast-growing Aldi wants to have 1000 stores in 2022 and have opened 76 new stores in 2017

If the German discounters are classified as competition, 28 to 54 stores must be sold, according to research by UBS. But if that is not the case, the number of stores that are reserved for closure will be between 132 and 161 according to the bank.

The grocery hopes that the CMA also considers online companies, namely Amazon, as competition.

If the watchdog demands split-offs from the Sainsbury & # 39; s and Asda stores, the grocer's ability to do so will linger on people like Tesco, M & S or Morrisons who are willing or able to take the units out of their take hands.

And that is not self-evident, as some supermarkets slow store openings, and the fast-growing discount stores look for stores that are smaller than average Sainsbury's or Asda.

Will it increase fuel prices?

In addition to the issue of overlapping stores, the CMA is likely to examine how the deal will affect the competition in the sale of gasoline.

According to data analyst Statista, the Big Four supermarkets account for nearly half of all sold fuel in the UK, with Asda being the fastest growing in this category and Tesco the market leader.

But the merger would all change that, allowing Sainsbury & # 39; s Tesco to flood both at the pump and in stores.

Asda is currently known for lowering fuel costs, but that could change when the nearest petrol competitor is a Sainsbury & # 39; s because this would reduce the need to be competitive.

And what about fashion?

Asda & # 39; s George - the first clothing brand ever for supermarkets - was founded in 1990 by George Davies, the man behind High Street giant Next

Asda & # 39; s George - the first clothing brand ever for supermarkets - was founded in 1990 by George Davies, the man behind High Street giant Next

Asda & # 39; s George – the first clothing brand ever for supermarkets – was founded in 1990 by George Davies, the man behind High Street giant Next

Another category in which the group will capture an intimidatingly large part of the market is value clothing.

Asda's George is currently the second-largest retailer after being overtaken by Primark, according to Euromonitor data, while Sainsbury's Tu brand is sixth.

In addition, Sainsbury's £ 1.4 billion acquisition of Argos also improved its position in the toy, home and electricity locations less than two years ago, where Asda also has a strong market share.

Once the CMA has made its way through its long list of potential competition concerns in the first 40-day phase, it can bring the merger to an in-depth Phase 2 probe, which add about 24 weeks to the process and delay the deal further – to great irritation from the enthusiastic supermarkets.

But the watchdog has the power to completely spoil the grocer's dreams, unless the concerns it raises can be satisfactorily respected.

Sainsbury & # 39; s and Asda will still have many hoops to jump through before they can shake up the squashed supermarket sector and battle with the mighty Amazone.

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