As the Competition Markets Authority moves into phase 2 of its investigation into the planned Sainsbury’s-Asda merger, the watchdog says there is potential for Substantial Lessening of Competition (SLC) in 463 areas. This has led to questions over possible store closures in some areas, however, job losses and shutdowns have been previously ruled out.

In April, J Sainsbury and Wal-Mart, the world’s biggest supermarket retailer, confirmed they were in advanced talks about a tie-up that would create ‎a more powerful rival to Tesco, the UK market leader.

A merger between the UK’s second and third largest supermarket chains would create a new group with huge shares of the market in food, clothing, household goods and toy retailing.

The enlarged supermarket group would have nearly 3,000 stores and annual sales of more than £50bn (US$65bn). Sainsbury’s has a network of more than 1,400 supermarkets and convenience stores while Asda has around 600 stores. Sainsbury’s also has 800 Argos outlets.

The proposed deal is being closely scrutinized by the competition watchdog over concerns it would reduce competition and tighten the grip the four major supermarket chains – Tesco, Sainsbury’s, Asda and Morrisons – on the UK grocery market. A phase one investigation has already been carried out and both supermarkets have requested that the CMA fast-track to the phase two process.

Shortly after the Sainsbury’s-Asda merger was announced, analysis from the British think-tank New Economics Foundation (NEF) claimed that up to 2,500 jobs in core supermarkets supply chains could be at risk. However, direct store closures and job losses have been ruled out by Sainsbury’s with the retailer claiming that the merger could, in fact, lead to lower prices of up to 10 percent.

Last week the CMA said it had referred Sainsbury’s plan to buy Asda for an in-depth phase two investigation and yesterday (Sept 27) it published a 21-page document detailing that decision.

“At a local level, the Parties’ stores overlap in several hundred local areas across the UK. The CMA believes that the Merger may give rise to a realistic prospect of an SLC in many of these local areas if Sainsbury’s and Asda are insufficiently constrained by other local competitors,” says the CMA document.

“In light of the Parties’ fast-track request, the CMA has, for the purposes of the Phase 1 decision, adopted a filtering approach using a fascia counting methodology to identify local areas where that may be the case. Based on this assessment, the CMA believes that the Merger gives rise to a realistic prospect of an SLC in 463 local areas.”

Sainsbury’s and Asda have issued the following joint statement: “We welcome the start of the Phase 2 process. The grocery market has changed significantly in the last decade and is more competitive than ever, with the rise of discount formats, online grocery and food delivery businesses.”

"We look forward to working with the CMA on the Phase 2 inquiry, where we expect it to conduct a full review of the market and take these changing market dynamics into consideration.”

"Customers will be the big winners from this combination. By bringing the two businesses together, we will be able to invest further in more convenient ways of shopping while lowering prices and reducing the cost of living for millions of UK households.”

The CMA has confirmed, through its Phase one investigation, that the deal raises sufficient concerns to be referred for a more in-depth review.

“The companies are two of the largest grocery retailers in the UK and their stores overlap in hundreds of local areas, where shoppers could face higher prices or a worse quality of service,” it says.

“These concerns will be considered further in the Phase two investigation, along with other issues raised so far with the CMA – including those relating to fuel, general merchandise (such as clothing) and increased ‘buyer power’ over suppliers.”

The phase two investigation is led by an inquiry group chosen from the CMA’s independent panel members. The group will gather evidence – in particular through multiple customer surveys and engagement with other retailers, suppliers and industry bodies – to inform its detailed analysis.

Earlier this week we reported that Carrefour is reviewing its legal options to stop “unacceptable innuendoes” after fellow French retailer Casino claims that Carrefour made a tie-up approach. The Casino Group has said that it was contacted by Carrefour over the last few days with a view to a possible combination while Carrefour insists the merger proposal does not exist.