If this was a boxing match, then the result was a clear knockout, perhaps to the surprise of some onlookers. As one of my followers on Twitter noted, it is nice to see a regulator regulating. In this case, it was a straight NO – there is no case for the merger and it would cause multiple substantial lessenings of competition – in supermarkets, convenience stores, petrol and on-line.
To quote the regualtor the merger was blocked as it would lead to “expected price rises, reductions in the quality and range of products available, or a poorer overall shopping experience”. The customer would be worse off. This is a devastating multi-punch combination snatching (nay, bludgeoning) the prize money from Mike Coupe’s grasp. The full report is available from the CMA here.
I was not sure what I expected really, but it was nothing as brutal as this. I thought the CMA, especially after the knock-down of the provisional findings earlier in the year, would probably ask for a very high number of store sell-offs; so high as to be impossible for Asda and Sainsbury to contemplate complying with. That way the ‘failure’ would be on the companies. But no, they went all-in; we just say no.
Asda and Sainsbury must have thought at the outset that they had a chance. A year ago I wrote on this (“we’re in the money”) and was far from sure the merger would be allowed; but as I noted then, I could not believe Tesco/Booker was allowed. Given the market changes at the convenience store level, the c12% share of Aldi and Lidl and the shift to online sales (say 6% of groceries), then I suspect Asda and Sainsbury felt they had some hope. But they did not, and the CMA have really shied away from an effective duopoly, despite these wider market developments. The surprise for me in this is the strength of the CMA arguments on online retailing – they saw the state of the market as a negative for the merger, and not as a market undergoing change (at some pace) and thus likely to develop in interesting ways.
The Asda/Sainsbury merger was born out of problems for both retailers and none of those have gone away. The market continues to alter. Tesco has rebounded more quickly than expected and remains secure defending a 27% market share. Morrisons and the Coops are having fun whilst Waitrose and M&S try to figure their problems out. The discounters march on.
In April 2017 the columnist John Richards mused about the cost of all the adventures Sainsbury have had over the years (see my post and links) and whether the cost outweighed the benefits and whether the management time and effort could have been more profitability spent focusing on the core of the company. He described their approach as Sainsbury’s “death wish” and cited SavaCentre, Homebase, Shaw’s, Netto and now Argos as illustrations. That may be a tad strong, but you perhaps get where he is coming from. He also missed out Egypt and some other lesser roads entered. And then they went and added Asda to the list of “distractions”.
But back in the Uk, what are Sainsbury stores like and how are consumers reacting? Sainsbury has trod water for far too long and is likely to need fresh blood at the top and a real and sustained focus on operations. This has been missing for quite some time. Asda are stuck where they were with an unclear growth strategy. The parent Walmart has failed to change the UK market as it hoped when it lobbied the Labour Government ahead of its takeover almost 20 years ago (see the linked papers here). If they want out, then who is the buyer? Reading the CMA report, It would have to be a new player, but to what end and what could they do with the business? An interesting conundrum but how desperate to sell at any price are they?
Basically, a year wasted for both Asda and Sainsbury and at some cost. The problems for both remain the same. Not so much “we’re in the money” as “we’re in the s**t”.