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The Competition and Markets Authority said the proposed takeover of Asda by J Sainsbury could lead to reduced competition at both a national and local level, finding 463 areas where the two grocery retailers overlap.

In the full text of its phase one inquiry decision initially announced on September 19, the CMA said that while both companies had other rivals, “the parties are an important competitive constraint to each other” and that the proposed deal “gives rise to a realistic prospect of a substantial lessening of competition in the retail supply of groceries at a national level.”

Sainsbury’s has 606 supermarkets and Asda 584.

The 463 local areas were identified by the CMA after a “fascia counting” exercise, which looks at potential rival stores within defined geographic catchments. It does not necessarily mean that number of stores will have to be sold; in the merger between bookmakers Ladbrokes and Gala Coral, almost 800 areas of overlap were identified but fewer than 400 stores were sold.

Analysts’ estimates of the number of stores that may need to be sold range from around a dozen to 300. Sainsbury’s chief executive, Mike Coupe, has previously said that an extreme outcome on store disposals could scupper the transaction entirely.

Sainsbury’s and Asda have asked the CMA to reconsider its framework for assessing local competition, which is based on the notion that large stores constrain smaller ones, but not vice versa. This is a key distinction because it would allow hard discount stores such as Aldi and Lidl, which tend to operate from smaller sites, to be considered as viable competition. They were not considered as such in the phase one assessment.

The two companies have also asked for the geographic areas used for assessment to be widened. The regulator said it would consider both requests as part of its phase two deliberations. However, it also noted that potential overlaps from the companies’ convenience stores — Sainsbury’s operates 815 of these — will also fall within the scope of the phase 2 inquiry.

A spokesperson for Sainsbury’s and Asda said the two companies welcomed the start of the phase two process. “The grocery market has changed significantly in the last decade and is more competitive than ever, with the rise of discount formats, online grocery and food delivery businesses,” the person said.

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