The proposed Sainsbury’s and Asda merger has been around for just under a year now, and on Tuesday 19th March they released a joint statement responding to the Competition and Markets Authority (CMA). Their response to the CMA’s Provisional Findings and Notice of Proposed Remedies included a nod to Asda’s fuel pricing, something we questioned before.
Along with their fuel prices comes news of an up to 10% reduction across the board, Argos entering Asda stores and more.
What issues does the CMA have?
In February, the CMA released their provisional findings and in it they raised concerns that at over 100 petrol stations petrol prices could be inflated and competitiveness in some areas would reduce if the merger went ahead.
They found a multitude of issues in the original documents, ranging from supplying to removing the competitive nature in areas where there are limited stores. The CMA proposed options to address their initial concerns, including blocking the deal or requiring the merging companies to sell off a significant number of stores and other assets – potentially including one of the Sainsbury’s or Asda brands – to recreate the competitive rivalry lost through the merger.
Stuart McIntosh, chair of the independent inquiry group carrying out the investigation, said: “These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day. We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK. We also have concerns that prices could rise at a large number of their petrol stations.
“These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out today. It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don’t lose out.”
Sainsbury’s and Asda released their report into the findings and heavily argued against the results. The main highlight for PetrolPrices was the statement about fuel profits.
Currently, Sainsbury’s are ordinarily second or third, tied with Morrisons, to drop fuel prices which are always led by Asda. Asda also has a price promise to be the cheapest petrol station of any station in a 3-mile radius of one of theirs. Back in May, we queried this in one of our articles, and it seems it has now been answered.
Sainsbury’s announced they would cap their gross profit margin on fuel at 3.5pppl for five years, showing that it is currently more than this. Asda confirmed they would keep their current fuel pricing strategy. These price commitments will be publicly annually verified by an independent body and released to all.
The interesting thing is perhaps the five-year limit on the profit margin limit, which implies that after five years, the prices could rise or could potentially fall.
Jason Lloyd, Managing Director of PetrolPrices.com, said “ASDA dominates the top 250 cheapest fuel locations in the UK, which was one reason why the CMA rejected the proposed merger. Although it’s a good thing for the newly combined group to guarantee their lowest price fuel strategy for ASDA and capping gross margin at Sainsbury’s forecourts at 3.5p a litre, it’s not clear if the CMA will accept the proposal, particularly being monitored by an independent 3rd party reviewer.
However it seems clear that Walmart really wants to sell ASDA off, so there could be an opportunity for the CMA to force the new group to guarantee lowest fuel price strategy for ASDA and Sainsbury’s combined. That would be very significant, and no doubt put them into UK market leader for petrol retail by volume sold for many years to come.”
Implications for consumer
Sainsbury’s currently own 311 forecourts (as of 2018) and Asda own 319 (2018). Combined the market share would be 17.6%, higher than Tesco, the current market leaders, share. This could potentially lower the other supermarket’s cost as they aim to compete with the market leader in both price and size.
Overall, prices could go down but if the share prices teeter any lower then they could drive up their prices slightly to compensate for any initial losses.
Sainsbury’s Chief Executive, Mike Coupe and Asda Chief Executive, Roger Burnley said:
“We are trying to bring our businesses together so that we can help millions of customers make significant savings on their shopping and their fuel costs, two of their biggest regular outgoings.
We are committing to reducing prices by £1 billion per year by the third year which would reduce prices by around 10% on everyday items. We are happy to be held to account for delivering on this commitment and to have our performance independently reviewed and to publish this annually.
We hope that the CMA will properly take account of the evidence we have presented and correct its errors. We have proposed a reasonable yet conservative remedy package and hope the CMA considers this so that we can deliver the cost savings for customers.”
What do you think of the merger? Do you think this will help lower fuel prices? Let us know below