The Competition and Markets Authority (CMA), having ‘fast-tracked’ the proposed Sainsbury’s/Asda merger for a detailed “phase 2” investigation in September, has now published its detailed issues statement setting out the possible concerns on which it will focus. The statement invites individuals and businesses to comment on the issues it identifies, to help the CMA assess whether the merger might harm competition in any markets.
Suppliers to these and other supermarkets may well want to take the opportunity to assist the CMA with its deliberations, including responding to what Sainsbury’s and Asda themselves had to say in their joint initial submission. The window for submissions is small, however, with a deadline of 30 October.
It will come as no surprise that the CMA chiefly intends to consider potential effects on customers, not only because of the obvious consumer-facing nature of the parties here but also because the CMA itself has a statutory focus on consumers. Its investigation will principally focus on the potential scope for the parties to increase prices, lower quality, reduce ranges and/or reduce innovation in relation to the supply of:
- groceries, both in physical stores and online;
- fuel; and
- different categories of general merchandise, particularly toys, some electricals and children’s clothes (including school uniforms).
In addition to these direct consumer effects, however, the CMA will also consider the merger’s effect on the parties’ buyer power towards their grocery suppliers. Large supermarkets such as Sainsbury’s and Asda are of course very important customers for a diverse range of suppliers across the UK food & drink sector. Suppliers who currently sell goods to Sainsbury’s and/or Asda may well be affected by the integration of supply chains, simplification of stock lines and squeezing of margins, particularly with respect to own-brand goods.
The CMA will not consider all the possible effects on suppliers. It is not the CMA’s role to protect suppliers against the merged business squeezing them for even better deals, which in and of itself the CMA would expect to result in lower prices for the consumer (and the merged supermarket would still be subject to the Groceries Supply Code of Practice). However, the CMA will be interested in the increased buying power of the merged business to the extent it might have knock-on adverse effects for customers.
The key risks the CMA will be looking out for in relation to the prospect of increased buyer power are:
- squeezing suppliers to the point that it affects their ability to innovate, to the detriment of consumer choice; and
- causing suppliers to increase the prices they charge to other retailers in order to make back the ‘lost’ margin, affecting the other retailers’ ability to compete with the merged entity.
Either of these outcomes could be bad news for customers. Suppliers looking to engage with the CMA should therefore focus on those possible ‘downstream’ effects of the merger, rather than just potential adverse effects on their own businesses. In particular, the CMA is seeking to engage with suppliers to understand the different factors that influence the prices supermarkets pay.
Suppliers may nevertheless be nervous about making submissions to the CMA, for fear that what they say may find its way back to the parties and harm their commercial relationship. The CMA takes the confidentiality of submissions very seriously. It is required by law to keep commercial information confidential. While it cannot provide a 100% guarantee of confidentiality, on the basis that some disclosure or publication of views may be necessary to give the merging parties a fair hearing or comply with the CMA’s obligation to give reasons for its decisions, any disclosure is generally limited to the minimum information necessary (including disclosing information without attributing it to the source where possible).
If any supplier would like to make a submission to the CMA, but is worried about the consequences of doing so, it is possible to have a discussion with the CMA to explore how a particular submission would be treated. Brodies’ competition team would be happy to approach the CMA on behalf of any client in that position, including on a ‘no-names’ basis in the first instance. We are also happy to assist with any queries about the merger control process and/or the preparation of submissions.