Value retailer Poundland’s proposed takeover of rival 99p Stores will face an “in-depth” investigation by competition authorities.
But an initial probe by the Competition and Markets Authority (CMA) has found that the buyout could worsen the position for shoppers in 80 shopping areas across the UK, due to a potential “reduction in quality”, fewer promotions and store closures stemming from a lack of competition.
The deal will now be scrutinised more closely unless the CMA’s concerns are addressed in a “clear-cut manner” by both parties.
Poundland said it was “carefully considering” the developments.
“Without competition from 99p Stores, there is the possibility that Poundland may have the incentive and ability to deteriorate its offer to the disadvantage of customers”
Sheldon Mills, Competition and Markets Authority
A statement from the CMA said: “The transaction gives rise to a realistic prospect of a substantial lessening of competition in 80 local areas where the companies currently overlap – and in a further 12 areas where they will be competitors in the near future.
“The CMA found that the loss of competition between the companies may lead to a worsening of their offer locally, through a reduction in quality, fewer promotions or closure of their stores.
“The transaction will therefore be referred for an in-depth phase two investigation by an independent group of CMA panel members unless the parties offer acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.”
The CMA also said the deal would mean Poundland would only face close competition from one other single-price retailer with national scale, Poundworld.
Choice, value and service
CMA senior director of mergers Sheldon Mills said: “As consumers become ever-more price conscious, they value the low prices offered by these retailers and their shopping around for bargains is aided by the simplicity of their pricing.
“After the transaction, Poundland will no longer face competition from its closest rival, and following our initial investigation, it is unclear whether the constraint posed by remaining retailers is sufficiently strong to mitigate our concerns over how the transaction might affect choice, value and service for shoppers.
“Without competition from 99p Stores, there is the possibility that Poundland may have the incentive and ability to deteriorate its offer in these areas to the disadvantage of customers that have come to rely on their offer.”
In a brief statement, Poundland said it was “carefully considering the CMA’s announcement, together with the full detail behind it.”
The retailer said it would make further announcements “in due course”.