Global pricing specialists Simon-Kucher have greeted the Competition & Markets Authority’s decision to raise the red flag over the £12bn merger between Sainsbury’s and Asda as welcome news for both supermarket suppliers and shoppers.
The CMA’s early response in their enquiry is that the deal could lead to higher prices, a poorer shopping experience and poorer quality and choice at its stores and online.
The announcement has prompted a speedy response from James Brown, head of the Retail & Consumer Goods practice at pricing specialists Simon-Kucher, who advise numerous supermarket suppliers:
“Many suppliers will breathe a sigh of relief on hearing that the Competition & Markets Authority (CMA) seems to be moving towards rejecting the merger. This looks like good news for suppliers and – if we believe the CMA’s analysis – for shoppers too.
“The argument from Sainsbury’s and Asda that reducing competition would lead to lower prices was always going to be tough. That can work if you can make substantial cost savings – but how much more can really be squeezed from grocery suppliers?
“For branded suppliers, it was mostly stick and no carrot. There is very little benefit suppliers can take from a merger, mostly they will lose volume sales. For private labels, as in own brand), the chance to win big new contracts could be powerful and have led to real cost savings. Though how much more efficient it is to manufacture to serve 29% of the market versus 15% is up for debate.
“Put simply, the CMA’s modelling – which we expect Sainsburys and Asda to challenge both in terms of method and outcomes – shows that any likely cost savings from the merger won’t offset the incentives to increase price.
“Sainsburys and Asda are extremely confident in their ability to deliver lower prices – the CMA is clearly less so, and we can expect that to be the focus for the remainder of the investigation.”