Essential reading for retailers and suppliers in the home improvement market

Sainsbury’s and Asda commit to £1billion of grocery savings

Published: 22 March 2019 - Kiran Grewal

Sainsbury's and Asda have recently submitted to the Competition and Markets Authority (CMA) its responses to the CMA's Provisional Findings and Notice of Proposed Remedies, following a damning report, suggesting possible action would be made to block the deal entirely or insist the supermarket chains sell off a “significant” number of stores to a suitable party, and potentially ditch either the Sainsbury's or Asda brand.

 


Sainsbury's and Asda strongly disagree with the CMA's Provisional Findings and have found the CMA's analysis of their proposed merger to contain significant errors.

 Sainsbury's and Asda have made the following post-merger commitments:

To deliver £1 billion of lower prices annually by the third year post-completion. To invest £300 million in the first year of the combination and a further £700 million over the following two years as the cost savings flow through. This would reduce prices by around 10% on everyday items.

Sainsbury's will cap its fuel gross profit margin to no more than 3.5 pence per litre for five years; Asda will guarantee its existing fuel pricing strategy.

The price commitments will be independently reviewed by a third party and the Parties will publish the performance each year, holding them to public account.

Sainsburys will move to pay small suppliers (turnover with the business of <£250k) within 14 days; and Asda will continue to pay its small suppliers within 14 days, in line with existing commitments.

The two businesses are proposing to merge so that they can lower prices for customers in an increasingly competitive market, while improving quality and service. It said it will create cost savings in three ways:

By securing lower purchasing prices from suppliers, predominantly by paying the lower of the two prices that Sainsbury's and Asda currently pay large suppliers for identical products.

By putting Argos stores into Asda.

By jointly buying shared goods and services and reducing central costs.

Sainsbury's chief executive, Mike Coupe and Asda chief executive, Roger Burnley said: "We are trying to bring our businesses together so that we can help millions of customers make significant savings on their shopping and their fuel costs, two of their biggest regular outgoings.

"We are committing to reducing prices by £1 billion per year by the third year which would reduce prices by around 10% on everyday items. We are happy to be held to account for delivering on this commitment and to have our performance independently reviewed and to publish this annually.

"We hope that the CMA will properly take account of the evidence we have presented and correct its errors. We have proposed a reasonable yet conservative remedy package and hope the CMA considers this so that we can deliver the cost savings for customers."

The CMA is expected to publish Sainsbury's and Asda's responses to the Provisional Findings and Notice of Possible Remedies in due course. The final report is expected to be delivered by 30th April.

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