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CMA blocks merger between Sainsbury's and ASDA

25 April 2019
Find out about the Competition and Markets Authority's findings and what this decision means for business. 

On 25 April 2019, almost a year since the announcement of the deal, the Competition and Markets Authority (CMA) decided to prohibit the anticipated merger between Sainsbury’s and Asda after finding that it may result in a substantial lessening of competition at both a national and local level for people shopping in supermarkets in the UK.

The final decision to block the Merger of two of the UK's largest supermarkets follows the CMA's provisional findings, published a couple of months ago, where the CMA set out options for addressing its competition concerns, including prohibiting the deal entirely or requiring the sale of a large number of stores and one of the parties' brand. 

While the CMA hinted at the time that Sainbury's and Asda might find it very difficult to address the concerns identified, a consultation period followed where the CMA reviewed further submissions from them and other interested parties before concluding that there was no effective way of addressing the concerns, other than to block the merger.

A summary of the final report is available here and the CMA's provisional findings are available here.

CMA findings

Following a detailed and wide-ranging investigation the CMA concluded in its final report that there were extensive competition concerns which could lead to price rises or to a worsening of quality, range or service for customers in a number of markets, including the retail supply of groceries in almost all areas in which Sainsbury's and Asda stores are present, as well as in the retail supply of online delivered groceries to the customer's location. The CMA also noted that customers would be affected across the UK, even in areas where Sainsbury's and Asda stores did not overlap.

In addition, the CMA found that in certain areas of the UK, Sainsbury's, Asda and other grocery retailers would recognise - as a result of the Merger - that they were interdependent and therefore could coordinate their behaviour to limit competition in order to reach a more profitable outcome.

Furthermore, the CMA's final report states that the combination of these two grocery retailers would not solely affect the groceries sector. Alongside core groceries in their larger stores, Sainsbury's and Asda also supply fuel through petrol filling stations (PFSs), which are often located adjacent to the larger grocery stores. According to the CMA's assessment, the merger would create the largest retailer of fuel by volume in the UK.

What does this mean for business

In making its decision to block the merger, the CMA took into consideration a number of recent trends in the groceries sector, including the growth of discounters such as Aldi and Lidl and their abiliy to challenge the 'Big 4' grocery retailers (Tesco, Sainsbury's, Asda, Morrisons); and the growth of online delivered groceries by retailers (including Tesco, Morrisons, Ocado, Waitrose, AmazonFresh and Iceland) and their effective constraint on the Parties.  While the CMA assessed these industry developments and their impact on the retail market, it stated that 'they did not allay its serious competition concerns about the merger'.

Looking more broadly, this case is clearly a landmark decision and shows a tough stance by the CMA which has held fast despite all the pressure it has been under.  No two deals are the same and all future mergers will be considered strictly on their own merits, but such a clear negative decision will arguably make large competitors thinking of merging reflect a little longer next time if dependent on such a critical and sensitive CMA approval.

If you have any questions about the decision or wider competition queries, please get in touch with Dimitris Sinaniotis, Director or Jonathan Branton, Head of EU Competition.

Further Reading