Asda-Sainsbury merger would hurt competition and small retailers — BBG
The proposed takeover of Asda by Sainsbury will reduce competition, hurt smaller retailers, limit innovation and increase copying, according to a lobby group.
In its submission to the Competition and Markets Authority inquiry on the transaction, the British Brands Group said the combined market share of Sainsbury and Asda for branded goods was significantly higher than their share of the overall grocery market because Aldi, Lidl and Marks and Spencer sell mostly own-label products. It estimated that, were the deal to proceed, Tesco and Sainsbury-Asda would control 70 per cent of the procurement market.
It added that suppliers were already under heavy price pressure because of changes in grocery market structure — resulting in “cost cutting, rationalisation and factory closures” — and that further margin pressure would “by necessity” lead to more reductions in investment.
When the takeover was announced in April, Sainsbury’s and Asda committed to reduce the price of some everyday items by 10 per cent as they aligned group buying prices. They argued the margins of the large multinational companies that dominate their supply base by value could easily absorb such reductions.
The BBG, which does not disclose its membership publicly but which is dominated by small and mid-sized suppliers, said the two companies buy in different ways which would make harmonising buying prices difficult. It also said any manufacturer delisted by Sainsbury-Asda could potentially become unhealthily reliant on Tesco, the other major player in what could become an effective duopoly. The Groceries Code Adjudicator’s current remit affords it little scope to police the impact of the combination.
The CMA is expected to present its preliminary findings in January and a final report in March. Although its formal remit covers only the impact on consumers, it has come under political pressure to consider the effects on suppliers as well.