Sainsbury’s & Asda detail price cuts in bid to win CMA approval for merger

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Sainsbury's Asda
// Sainsbury’s and Asda send official responses to the CMA regarding provisional findings on their proposed merger.
// The grocers have set out details on how they would achieve a 10% price cut pledge.
// Comes after the CMA last month indicated it could block the proposed £12 billion merger.

Sainsbury’s and Asda have revealed new details surrounding their pledge to cut prices in their official response to the CMA’s recent probe of their proposed £12 billion merger.

The UK’s second and third largest grocers also used their response to express disagreement with the CMA’s provisional findings, which were published last month.

The grocers said the CMA’s analysis contained “significant errors” which were compounded by its “unprecedentedly low” threshold for identifying competition problems.

They said the threshold did not fit the facts and evidence of the proposed merger, therefore “generating an unreasonably high number of areas of concern”.

When the proposed merger was first announced last year, Sainsbury’s and Asda both made commitments to cut prices on “everyday items” by at least 10 per cent, but did not provide much detail on how this would be achieved.

In a statement this morning, Sainsbury’s and Asda said they would deliver this price cut pledge through £1 billion worth of lower prices annually by the third year after the merger is completed.

It said it planned to invest £300 million in the first year of the merger and a further £700 million over the following two years as the cost savings flow through.

Specific details on how many or which products would have their prices reduced were still unknown, although this could be revealed once the CMA publishes Sainsbury’s and Asda’s responses to its provisional findings in due course.

Meanwhile, Sainsbury’s said it would cap its fuel gross profit margin to no more than 3.5 pence per litre for five years and Asda pledged to guarantee its existing fuel pricing strategy.

The grocers added that its price cut commitments would be independently reviewed by a third party and this would be published each year in order to hold them to public account.

The two Big 4 retailers said the cost savings would be created by securing lower purchasing prices from suppliers, predominantly by paying the lower of the two prices that Sainsbury’s and Asda currently pay large suppliers for identical products.

They added that cost savings would be achieved by placing Argos stores into Asda, and by jointly buying shared goods and services.

Furthermore, Sainsburys said it would move to pay small suppliers with a turnover of less than £250,000 within 14 days while Asda would continue to pay its small suppliers within 14 days, in line with existing commitments.

The two supermarkets said they have given the detail of their estimated £1.6 billion cost savings to the CMA, which is expected to publish its final report on April 30.

Sainsbury’s and Asda also outlined a supermarket and petrol forecourt divestments across both brands that they hope would satisfy reasonable concerns regarding lessening of competition as a result of the merger.

When the CMA unveiled its provisional findings last month, it hinted it could block the proposed £12 billion merger of Sainsbury’s and Walmart-owned Asda.

The competition watchdog expressed “extensive” concerns about the deal and identified 629 locations where competition could be impacted.

The CMA added that the two grocers would need to sell at least 300 stores to a single buyer in order for the merger to be green lit, while highlighting it would be “difficult for the companies to address the concerns it had identified”.

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2 COMMENTS

  1. Price cuts will be funded by suppliers in the longer term. Retailers are not to be trusted. Supermarket buyers absolutely rule the roost when it comes to what they do. The CMA will be doing a disservice to everyone if they allow this merger. Let us all rely upon good and fair competition to dictate prices – not empty promises.

    • Nothing wrong with suppliers funding price cuts. It’s about price to consumer that matters. Their margins are higher than supermarkets.

      Scale is important in retailing, it drives economies. Lidl, Aldi and Tesco are larger companies than Sainsburys and Asda.

      If the CMA block this then they are protecting Tesco’s market share and doing consumers a disservice.

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