Why Sainsbury and Asda can survive without merging

Well, they can’t say they were not warned. In his first test at the Competition and Markets Authority, Andrew Tyrie is throwing the book at the proposed merger of J Sainsbury and Asda. From suppliers to shoppers, local to national, innovators and competitors, the CMA will be turning over stones. It has already found 463 locations “where there could be an issue”. The arguments over current market share have been joined, and Shore Capital’s veteran analyst Clive Black sees “a minefield of legalese and pseudo-academic analysis” ahead. This promises to be an exhaustive and exhausting process, and will not be quick. Yet in essence the question is a simple one: are Britain’s second and third-largest grocery businesses too feeble on their own to live with Aldi and Lidl?

 

At first sight the answer seems self-evident. Both have larger market shares than either of the discounters, which should offer sufficient scale to keep them at bay. Both have established stores, while the discounters have to find locations. Ah, but not all the property is in the right place or the right size, and besides, Lildi’s UK operations are little more than cat’s-paws, and they use their continental muscle to scratch our supermarkets. The merger advocates have already played their strongest card, promising wonderful savings for Sainsda shoppers, thanks to scale and improved distribution efficiency. The CMA might consider this card a variant on the Find the Lady conjuring trick, and ask for previous examples where the consumer has actually benefited from megamergers. While nobody doubts that grocery is competitive, in such conditions everybody charges what the market will bear. And the idea that suppliers would welcome having to deal with fewer buyers is risible. The bigger ones are quite ugly enough to take care of themselves, while the smaller ones would find themselves in an even tighter squeeze than they are today.

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