plan to create Britain’s biggest supermarket is squashed, on fears it would harm consumers IT WAS BILLED as the retail deal of the decade, at a stroke creating Britain’s biggest supermarket chain—and one of Europe’s largest, too. No longer. On April 25th Britain’s Competition
A plan to create Britain’s biggest supermarket is squashed, on fears it would harm consumers
IT WAS BILLED as the retail deal of the decade, at a stroke creating Britain’s biggest supermarket chain—and one of Europe’s largest, too. No longer. On April 25th Britain’s Competition and Markets Authority (CMA) blocked the proposed £12bn ($15.5bn) merger between the country’s second-largest supermarket, Asda, which is owned by America’s Walmart, and the third largest, Sainsbury’s. By combining the pair’s market shares of 15.4% and 15.3% respectively, the new Sasda, or somesuch, would have leapfrogged the current market leader, Tesco, which has 27%. The merged entity would have had a turnover of about £51bn a year.
Asda and Sainsbury’s argued that in Britain’s ruthlessly competitive retail market, the deal would have given them room to cut costs and thus offer lower prices to customers. Mike Coupe, the boss of Sainsbury’s, had claimed that prices would fall by as much as 10%. It would also have enabled the new firm to compete more effectively with Aldi and Lidl, two German discount stores that have been gobbling up market share over the past decade. Sainsbury’s and Asda must have been encouraged by a wave of consolidation in the retail world; in 2017 Tesco bought Booker, a wholesaler, for £3.7bn, and the previous year Sainsbury’s had bought Argos, a home retailer, for £1.4bn.
Not so fast, says the CMA. Despite promises from Sainsbury’s and Asda to sell between 125 and 150 of their stores to allow the merger to proceed, the CMA was unconvinced that the creation of such a giant was in the best interests of shoppers, or indeed of anyone other than the companies’ bosses. “Following our in-depth investigation,” explained Stuart McIntosh of the CMA, “we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.” In particular, the CMA found that the proposed price reductions were “unlikely to be realised” either online, in store or at the petrol pumps, with drivers likely to pay more at over 125 locations where Sainsbury’s and Asda currently have petrol stations close together.
The two supermarkets bemoaned the CMA’s decision. Many others, however, are relieved. Trade unions are happy that job cuts have been avoided. Farmers and other suppliers had expressed concern at the merger; they would probably have borne the brunt of the cost cuts.
The collapse of the deal leaves Sainsbury’s, in particular, in a pickle. Its share price, already significantly down over the past few years, dipped sharply on the news. Many analysts and investors had argued that Sainsbury’s management was investing too much faith and time in a merger that always looked vulnerable to the CMA’s intervention, while ignoring the company’s underlying weaknesses. In contrast, Tesco and Morrisons, the final member of Britain’s big four supermarkets, have been urgently addressing their own shortcomings. Tesco, in particular, has staged a spectacular comeback. In 2015 the company posted the biggest loss (£6.4bn) in British retail history; on April 10th it announced a 29% yearly jump in pre-tax profits, to £1.7bn. Sainsbury’s investors can only look on enviously. They will be looking carefully at the company’s annual results, due on May 1st. They may yet have Mr Coupe on toast.
The CMA’s decision may also have wider implications for British business and the economy. In the past decade Britain has witnessed about $2trn-worth of mergers and acquisitions of domestic firms. Relative to the size of the economy, that is over a fifth more than in America over the same period. American economists and politicians are increasingly concerned that their economy has become too concentrated, limiting competition and eroding consumer welfare. These same concerns have been expressed in Britain, but this is the first time the CMA has blocked such a deal since its creation in 2014. The merger’s quashing could yet prove to be an important moment in the reform of Britain’s over-concentrated economy.
Answer three questions about the article
1. What type of growth would the merger of Asda and Sainsbury's have represented?
a. Horizontal expansion.What problem does the text in Italic refer to?
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