£12bn Sainsbury’s-Asda merger faces more scrutiny

Sainsbury's Asda

Scrutiny for the proposed £12 billion merger between Sainsbury’s and Asda has escalated, with two parliamentary committees raising concerns over the impact on shop prices and suppliers.

The chairs of the business and environment committees have written to the Competition and Market Authority (CMA), urging it to consider issues of “market dominance” and whether the proposed deal would create “local monopolies”.

Earlier this week, Sainsbury’s and Walmart-owned Asda revealed details about a proposed mega merger that would create one of the UK’s biggest retail groups, with combined revenues of around £51 billion and a network of 2800 Sainsbury’s, Asda, Habitat, George and Argos stores.

The CMA has said it was “likely” to probe the deal, and if approved it would create a supermarket titan that would topple Tesco from its longstanding dominance in UK grocery market share.

In the letter to the CMA, Environment, Food and Rural Affairs Committee chairman Neil Parish said: “Grocery retailers don’t have a gleaming record of treating suppliers well and the Groceries Code Adjudicator’s 2017 survey found that Asda was the worst grocery retailer in the eyes of its suppliers.

“The cost savings being promised through this merger must not come through squeezing those further down the supply chain.

“I am also concerned that with two supermarkets taking up around 60 per cent of the market, suppliers would be more reluctant to raise complaints about unfair practices.”

Yesterday, the groceries code adjudicator Christine Tacon told MPs during a select committee hearing that she had “no concerns at all” about the size of new business entity, as bigger retailers are often easier to regulate.

She added that she hoped the merger would bring Asda up to Sainsbury’s standards in terms of how it treated suppliers.

Meanwhile, the committees’ letter flagged concerns on how the two players – the newly-merged entity and Tesco – would hold too much power in the retail market.

The committees also asked the CMA to outline the length and scope of its investigation, as well as the methodology used to come to any conclusion.

Business Committee chair Rachel Reeves said: “This merger threatens customer choice, hands yet more power to mighty supermarket players and heaps more pressure on small and medium suppliers.

“The CMA needs to be a champion of consumers and it must look closely at the impact of this merger on the supply chain as well as the effect on competition in the supermarket sector.”

The proposed merger has also sparked concerns over pensions and store disposals that may be required, with Work and Pensions Select Committee chairman Frank Field on Wednesday urging Sainsbury’s boss Mike Coupe to seek approval from The Pensions Regulator.

This prompted Coupe to reassure MPs that the merger “strengthens the pension covenant” and “protects the long-term interests of around 90,000 Sainsbury’s defined benefit pension scheme members”.

Nonetheless, the regulator said it was in preliminary talks with “all parties involved in the merger” to determine whether the deal could be detrimental to employees’ pensions schemes.

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