The Competition and Markets Authority (CMA) has formally launched its investigation into the proposed merger of Sainsbury’s and Asda.
Merger investigations happen in two phases: Phase 1, where the CMA has to consider whether there is a potential harm to competition requiring further scrutiny, and Phase 2, where a specially convened CMA panel considers the merger in detail and decides whether the effect would significantly lessen competition.
Merging parties can ask the CMA to “fast track” the process to Phase 2 in order to speed up this process, particularly where the merger is on a scale likely to require the more detailed Phase 2 scrutiny. Asda and Sainsbury’s have already asked the CMA to fast-track their merger to Phase 2. The CMA has indicated that it is minded to accept that request unless it receives valid objections to doing so, though it has also (as part of the Phase 1 stage that commenced yesterday) invited submissions from third parties, by 31 August, on how the merger could affect competition. While parties will have a further opportunity to make submissions to the CMA when the investigation moves to Phase 2, the CMA may be more likely to seek out the views of those who make a Phase 1 submission.
While any effect on competition is likely to be most significant in relation to groceries, given the market power of Sainsbury’s and Asda in that market, the CMA will also assess the effect the merger might have in respect of non-grocery products such as fuel, electricals and clothing. The CMA will be most interested in the effect the merger might have on the prices and quality offered to customers, but major supermarkets are of course very significant customers for many suppliers, and competition law is concerned with both sides of that coin. Suppliers who currently sell goods to Sainsbury’s and Asda may well be affected by the merger as supply chains are integrated, stock lines simplified and margins squeezed, particularly with respect to own-brand goods. While it is not the CMA’s role to protect suppliers from the merged supermarket using its increased ‘buyer power’ to squeeze even better deals out of them, it will be very interested in such practices where they could have a knock-on impact on consumers: for example, if they could lead to less choice, less innovation, or higher prices being charged to competitor retailers to gain back lost margins. Suppliers looking to make submissions should therefore be focusing on those possible ‘downstream’ effects rather than just potential adverse effects on their own businesses.
While merger inquiry submissions to the CMA are confidential, they are not 100% risk-free. Businesses can find that they make a submission in response to a merger inquiry (for example, proposing a narrow product or geographic market definitions) that later limits their ability to argue for a different approach if and when they themselves are involved in a merger or other competition investigation. It is therefore important that submissions to the CMA are framed carefully.