Morrisons raises duopoly fears over Sainsbury’s-Asda merger

4 December 2018 (Last Updated December 4th, 2018 13:41)

Supermarket giant Morrisons has warned that the proposed Sainsbury's-Asda merger will create duopoly dominating the UK grocery market.

Morrisons raises duopoly fears over Sainsbury’s-Asda merger
Morrison’s speaks out against Sainsbury’s-Asda merger. Credit: Roger Cornfoot

Supermarket giant Morrisons has warned that the proposed Sainsbury’s-Asda merger will create duopoly dominating the UK grocery market.

In evidence now published online, Morrisons told the UK’s Competition and Markets Authority (CMA) that the proposed merger will create a ‘duopoly’  between Tesco and the merged entity which will be ‘controlling in excess of 60% of the market’.

Morrisons is concerned that if the merger goes ahead, the prices may increase between the two companies, which in turn would mean the loss of Asda as a major competitive force.

The grocer has also cautioned CMA that this would make it possible for Tesco and the merged entity to compete less fiercely and maintain this position ‘as they will be controlling the majority of the market’.

According to Morrisons, online services will be even more affected by the merger. Morrisons believes that post-merger 75% of the online groceries market will be controlled by Tesco and the new merged entity.

Due to lack of the competition, Morrisons said that Tesco and the merged entity could potentially increase their delivery charges in order to make their businesses more profitable.

Tesco’s view on the Sainsbury’s-Asda merger

Meanwhile, Tesco has said that the proposed merger is a ‘four-to-three’ deal that would not be approved ‘without extensive remedies under existing precedent’. The move would reduce the current big-four UK supermarkets (Asda, Sainsbury’s, Tesco and Morrisons) to three.

Tesco added that the proposed merger is a ‘challenge in terms of economics’ and there are ‘few direct customer benefits’.

In addition, Tesco told the CMA that almost all of the Sainsbury’s-Asda merger promises rely on ‘harmonising costs and prices from suppliers and that is a big ask when the merging parties do not appear to be able to offer suppliers very much in return’.

Tesco said that generally, retailers have to pay the prices branded suppliers set, otherwise they would not supply to them.

Lidl and Waitrose views on the Sainsbury’s-Asda merger

In separate hearings, Lidl and Waitrose had warned CMA that the proposed Sainsbury’s-Asda merger could lead to an increase in prices.

According to Waitrose, the proposed merger may affect competition and impact the outcomes for consumers. The retailer has also said that the merger would increase the scale and buying power of the merging parties, which could have an impact on suppliers.

Meanwhile, Lidl has told the CMA that it competes with Sainsbury’s and Asda in only around 2,000 of the 30,000 products they stock. It suggested that in the rest of their range the merging parties will have less competition and will, therefore, have the capacity to increase prices.

The merging parties have announced plans for a 10% reduction in the prices of everyday essential products which, according to Lidl, will lead to suppliers charging higher prices to other grocery retailers.

Sainsbury’s-Asda merger

In April, Sainsbury’s confirmed plans to merge with Asda, currently owned by supermarket giant Walmart, and promised that the merger will lead to lower prices.

At the time of the announcement, Sainsbury’s chief executive Mike Coupe said: “This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future.

“It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy. Having worked at Asda before Sainsbury’s, I understand the culture and the businesses well and believe they are the best possible fit.”

In August the CMA launched a formal investigation into the proposed merger. As part of the investigation, CMA is conducting a detailed assessment of how the deal could affect competition for UK shoppers.

CMA chief executive Andrea Coscelli said: “About £190bn is spent each year on food and groceries in the UK so it’s vital to find out if the millions of people who shop in supermarkets could lose out as a result of this deal.”