More Detailed Information On Price Cuts By Sainsbury’s And Asda

  • Mar 21, 2019 GMT
  • Team Kalkine
More Detailed Information On Price Cuts By Sainsbury’s And Asda

The chain of supermarkets Sainsbury’s and Asda will cut their product prices as part of their response to the Competition and Markets Expert’s conditional verdict on their planned £7 billion merger, according to people briefed on the process. The supermarkets would revaluate all the key factors of consumer harm using more realistic criteria and submit an altered proposal for store disposals. Analysts had previously predicted between 100 and 150 stores would need to be sold.

After the announcement of Asda acquisition by Sainsbury’s, both the companies promised to reduce the product cost by 10 per cent but did not give proper details about how many and which products to be included. As per the CMA (Competition and Marketing Authority), the companies have to sell more than 300 stores if they need securing approval for this deal. They have given new submission to CMA, as per which both Sainsbury’s and Asda will give all details about the annual savings publicly for the customers. This will include the exact number which was given to CMA but was deleted from its report.

They are more focused on the cost savings to customers as a reply to CMA’s allegations on consumer harm. Those commitments will be accompanied by evidence of alleged mathematical errors in the CMA’s original calculations and a deconstruction of the “gross upward pricing pressure index” or Guppi, which the supermarkets believe statistically unreliable method and don’t give accurate results related to consumer harm.

In past, the CMA had hypothecated 5-10 per cent rise in price as the level at which problems appear as per independent competition law expert. Here it has dropped that to 1.5 per cent. Risk of reduced competition numbers given by Guppi modelling are complex as compared to the initial analysis done by CMA. Guppi tries to quantify the companies and assumes no efficiency gains of a merger. It uses only profit margins and diversion ratios are for the calculations.

The required information is gathered via a survey of shoppers which the companies took in too few stores 100 out of a total of more than 1,200 and whose results were over-extrapolated to the entire estate.

The CMA’s initial verdict on the takeover was released in mid-February, was much more negative than most observers expected, resulted in a sharp fall in Sainsbury's’ share price. The regulatory authority will shortly publish the responses it has received to its initial decision and, having extended the final phase of the inquiry by eight weeks, deliver a final report by April 30.

If the verdict is still negative, the parties have the option of challenging it in court. If they appeal, they will have to argue that the CMA has acted unreasonably, as per the competition law expert. The regulator will, of course, say that it has acted within its discretion. He further stated that the prospect of a successful challenge was remote. The CMA has sent a clear signal that they don’t want this deal to go through and Sainsbury’s and Asda will struggle to overturn their decision.

The expert says there are two different views in the market regarding this deal. The CMA holds that the old Safeway decision is still the right one, as per expert, giving an example of 2005 takeover of Safeway by Wm Morrison. The parties have tried to argue that the growth of discounters and online mean everything has changed a long time back.

Sainsbury’s declined to all the statements. The CMA said that it used a wide range of evidence in the second phase of investigations and that all responses to its initial findings will be carefully considered before they reach the final decision.

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