The merger between Sainsbury’s and Asda could mean a “substantial lessening of competition (SLC)” in 463 local areas.
According to the Competition and Markets Authority (CMA), which released the results of its Phase 1 investigation into the proposed merger today, the “parties’ stores overlap in several hundred local areas across the UK”.
This follows news last week that the CMA was progressing its highly anticipated investigation into the tie-up to the more detailed Phase 2, which will ultimately determine whether the £7.3 billion deal will go ahead.
“The CMA believes that the merger may give rise to a realistic prospect of an SLC in many of these local areas if Sainsbury’s and Asda are insufficiently constrained by other local competitors,” it said.
Speculation on what the impact of the CMA’s investigation will be on the supermarkets’ store estate has been rife since the merger was announced earlier this year.
A recent analysis by The Times found that up to 300 stores may have to be offloaded to avoid lessening competition.
The merger of the country’s second and third largest supermarkets would topple Tesco’s longstanding reign as the UK’s biggest grocer my market share.
Sainsbury’s-Asda’s revenues would also be £51 billion thanks to network of 2800 Sainsbury’s, Asda, Habitat, Argos and George stores.
When it was first announced at the end of April, Mike Coupe said the merger would lead to £500 million in cost savings and further investment to lower prices by around 10 per cent on everyday items.
“While the CMA has signalled that there is the threat of substantial lessening of competition in 463 areas across the UK as part of its phase 1 investigation, this should not be taken as an indication that the merger is less likely to be approved,” Globaldata’s Patrick O’Brien said.
“The methodology used in phase 1 is a cruder calculation based on identifying whether or not the number of fascias in a catchment area would be reduced to less than four as a result of the combination of ASDA and Sainsbury’s.
“In phase 2, the CMA will be applying the much more complex ‘weighted share of shops’ technique, which is expected to weight the impact of competitors by how close they are geographically, and how closely they compete for the same shopping missions.
“Whether the merger goes ahead is dependent on the number of disposals the CMA demands being palatable to the merging parties.”