So, it’s been yet another week when the elite in power are stubbornly refusing to bend, ignoring common sense and seemingly intent on delivering an inferior outcome for the people of the UK.
The retailers continue to doggedly pursue an uphill struggle to convince the CMA that their union will be in the public good.
Recent developments include the public revelation of their intent to pass on some synergy benefits to shoppers in the form of £1bn in price reductions, as well as an offer to dispose of up to 150 locations to try and head off some CMA objections at the pass.
Hiking prices would be commercial suicide: shoppers have already shown they are more than happy to vote with their feet
The CMA’s position on the likely impact of the merger on pricing remains spectacularly misguided.
Bearing in mind that UK shoppers enjoy near-perfect visibility on pricing, if they want it, and pairing this with the cut-throat competition that typifies the market, the CMA’s assumption that any combined entity would wilfully increase prices is ludicrous.
Hiking prices would be commercial suicide: shoppers have already shown they are more than happy to vote with their feet, and any margin benefit for the retailers would be savagely counteracted by a slump in sales.
The next level of the CMA’s pricing logic is that, having decided that the only way is up for prices, they would clumsily implement our new favourite acronym, the GUPPI.
Respected consultancy AlixPartners has independently weighed in on the topic, arguing that the CMA has been far too reliant on the use of its Gross Upward Pricing Pressure Index (used to measure the likely upward impact on pricing) and it has somewhat arbitrarily reduced the GUPPI threshold from the usual 5% to a somewhat more onerous level of 1.5% for Sainsbury’s-Asda.
It was this approach that suddenly saw the creation of around 630 locations where the CMA said in its findings that there could be a substantial lessening of competition (SLC).
Will the CMA budge? The likelihood of a Damascene conversion appears depressingly remote
As Sainsbury’s has said, this – and other shortcomings in the CMA analysis – has created a scenario where the CMA reckons there will be an SLC in a local area with 10 competitor stores within an eight-minute drive, including three Tesco and Morrisons superstores, two Aldi stores, one Lidl, two Co-ops, one Marks & Spencer, one Iceland, a 65,000 sq ft Sainsbury’s store and a 9,000 sq ft Asda store. Hmmm.
Apart from anything else, I’m not certain that either Asda or Sainsbury’s would be able or willing to flex local pricing anyway.
I’m led to believe that the Asda systems are virtually incapable of running multiple price files, while – given that both companies sell groceries online – the can of worms that would be opened up by local price flexing would be best avoided anyway. Simply put – life’s too short.
In light of Sainsbury’s-Asda’s ongoing entreaties and the intervention of the likes of AlixPartners, will the CMA budge? The likelihood of a Damascene conversion appears depressingly remote, so the best we can probably hope for is a tweak of the GUPPI threshold and the CMA taking a chill pill of some description.
Regardless of the outcome, the CMA’s stance has not been a good look at a time when the UK is transitioning itself from a wonderful destination for global business to something more akin to a clown car.
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