Boom! When Poundland decided to acquire 99p Stores, the Competition and Markets Authority (CMA) took it to a Phase 2 investigation.
That in-depth inquiry into a minuscule element of the UK high street nearly bankrupted 99p Stores; the CMA did not care.
A year or so later, the CMA waved through unconditionally the merger of Britain’s largest supermarket and wholesaler – Tesco and Booker. The contrast characterises this unpredictable, self-perpetuating, pseudo-intellectual and detached authority.
Former Asda chief executive Andy Clarke correctly said the Booker-Tesco clearance, a decision met with broad derision in many upright quarters it should be said, was a game-changer.
And so it has come to pass with the proposed merger of Asda and Sainsbury’s, the latter in the driving seat as Walmart capitulates in the UK.
How will the CMA look at this deal? Well, it could start with the simple principle of asking whether a duopoly is good for shoppers in the long run.
We struggle with this assertion and the meaningfulness of a promise by Sainsbury’s chief executive Mr Coupe et al to cut prices by about 10% on common lines.
What about the long term? How can two fascias doing the same thing across thousands of lines – this is not milk – be operated from a single board with common buying, and compete rather than collude? How will the CMA engineer and guarantee that does not happen?
While we were disapproving of the decision to clear the Tesco-Booker merger in the shoppers’ interest, we do concede that both largely operate in distinct channels with varying functions, while Tesco’s 28% market share was largely organically achieved.
Allowing Asda and Sainsbury’s, both superstore operators, to ‘compete’ seems fanciful – take Monks Cross in York, for example?
If the CMA is minded to approve, which we sense it would because it may be pseudo-intellectual but is also somewhat detached from reality, what of any remedies?
Mr Coupe states that he does not envisage any store closures arising from the proposed merger. What of disposals? What if no other organisation is allowed or prepared to take on such stores?
Does the CMA force them to close, force Asda-Sainsbury’s to pay someone to take them on or just wave things through anyhow? The CMA is in a pickle here that it has brought upon itself.
This is not a merger from strength. It is demonstrably from a position of weakness. That is something the CMA should ignore – it is a competition regulator, not a management consultancy.
Additionally, we struggle with the magnitude of the integration and execution risk. Note that Sainsbury’s has not delivered Argos yet, and if Sainsbury’s synergies from this deal are on-trend, then something is going badly wrong to deliver full-year 2019 profits of £629m on a base of £589m in full-year 2018.
Messrs Coupe and Burnley, the Asda chief executive, know each other well. They are decent guys and they deserve credit for keeping their discussions under wraps for so long. They have also been bold and brought excitement to the industry.
While so, this merger raises some significant and concerning questions about the underlying performance and prospects of Asda and Sainsbury’s alike, the execution risks from this deal, particularly operating two fascias at the same time, and the fitness of purpose of a regulator that has been highly questionable in this respect for some years.
If the CMA’s prime role is to bring in work for itself, which most bureaucracies are, then it has succeeded.
If the CMA is looking after British shoppers, then it has not. It is about to face its biggest challenge in retail to date. I am not optimistic for the shoppers of the UK.
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