Sainsbury’s/Asda earlier this year have proposed what many are calling it a ‘Mega Merger’. This merger proposed, is the biggest the UK has seen since 2003. In 2003 Morrisons got the go ahead to buy their with then rivals, Safeway.
Sainsbury’s/Asda proposed merger should have the Competition And Market Authority jumping into action. For me, this merger if accepted, would be a serious threat to the competition. The role of the CMA is to ensure competition and choice is not hurt by mergers. In 2003, the CMA gave the go ahead for the Morrisons/ Safeway merger. Before the Morrisons proposal was accepted to buy their rivals Safeway, the CMA Blocked attempts from Tesco, Asda and Sainsbury’s. The CMA concluded if any of the ‘ big three’ bought Safeway it ‘ would not act in the best interests of the consumer’. The 500 page report added, ‘they might use their additional buying power to squeeze suppliers and use their gains to boost profits, rather than lower prices.
So surely this proposed merger cannot work. In 2003 a key reason for why the Morrisan/ Safeway was accepted by the regulator, was because they felt it would create greater competition.
So what has changed?
In 2017, the market saw which at the time described as a ‘revamp’ of the retail sector. The £3.7 billion deal, saw Tesco go from serving the public to providing to trade buyers. The CMA did allow the merger to go ahead. Concluding ‘ that Tesco’s purchase of Booker did not raise competition concerns. Booker is a wholesaler, while Tesco is a retailer, they don’t compete directly. The CMA report regarding the deal also states, since Booker supplies shops including Premier, Londis and Budgens, which do directly compete with Tesco. The CMA concluded on this matter that as Booker does not own these shops, Booker cannot decide how they compete. Although this proposed deal by Sainsbury’s/Asda is slightly different with them being both retailers and direct competitors. I believe Tesco/Booker has set a precedent.
As the market stands, Tesco currently dominates, with their revival in recent years. Tesco currently dominates the market share with an impressive 27%. As competitors Sainsbury’s stands in second place with 15.9% and in third place is Asda with 15.5% market share. In this context the merger makes sense for them to effectively compete with Tesco. As the two companies merging would give Sainsbury’s/Asda over 30% market share, making them a ‘big’ number one. As well as helping Asda, they have seen their profits eaten away, by the German discounters Aldi and Lidl.
What is on offer?
Sainsbury’s and ASDA will not be complete equals in the merger, with Sainsbury’s paying a £2.975 billion cash payment to Walmart (ASDA parent company) for Asda’s 600 UK stores. However, Walmart will be repaid with a 42% stake, and will have two seats on the board. Sainsbury’s, are describing this merger as ‘ dynamic new player in UK retail industry, with an outstanding breadth of products delivered though multiple avenues’.
Sounds good, right? However, is it as good as it sounds.
Who will pay?
The supermarket chains claim they can merge without any job losses. However someone will have to pay. When Morrisons/Safeway merged in 2003, the CMA forced the supermarket chain to close 53 stores. This cannot be any different for this proposed merger. David Haywood, founder of Maximise UK reckons at least 6% or 73 combined stores are at risk. As they significantly overlap in the same postcode district. If the stores were to stay, towns could become monopolies, effectively dismantling their competition. It is enviable that stores would be closed. The issue here is, how many jobs will be lost, too many. CEO Mike Coupe has repeatedly stated that there will be a 10% reduction of ‘ everyday items’. My concern here is, who will pay for this, ‘promise’. I have seen that closures are inevitable to get past the CMA. Yet, It is my believe that suppliers will get the burden of this ‘promise’. The New Economic Foundation have conducted some research of supply job losses. They have found that 5% cut in prices paid to these suppliers could lead to a loss of more than 1,200 jobs here in the UK. The research found a 10% reduction in prices paid to suppliers could lead to a loss of up to 2,500 jobs. Sainsburys/Asda claim the merger will ‘ create significant opportunities for supplier’. I strongly disagree. Many food suppliers have a hard enough time to make a profit. An example here is our farmers. There is very little protection for our farmers producing food. Yes, we do have regulators (Groceries Code of Practice). However it only covers direct suppliers, not out farmers. We have to think about the bigger picture.
What does 10% reduction really mean?
Well for me, it means a harder and less regulated trade deals, which will compromise our food. Do we really want another house meat scandal? I believe this is what this merger will cause. The consumer may benefit in the short term. However, In the long term, I believe the customer’s choice will become too limited. If this merger is accepted the supermarket’s buying power will be far superior to any of their competitors. There is a chance that the competition could be dismantled and Sainsbury’s/Asda could raise their prices, taking advantage of the consumer limited choices.
Do we even live in an society, if we have no choice?