Higher prices. Lower quality of service. A worse shopping experience. The Competition and Markets Authority could hardly have been more damning as it blocked the proposed merger between Sainsbury’s and Asda.
In truth, the decision was not a surprise after the CMA published a preliminary report in February. The competition watchdog simply did not buy the argument from the two supermarket chains that there would be economies of scale from a merger that would generate lower prices for consumers.
The CMA was right to be sceptical about the claims made over a £1bn windfall for shoppers. A basic rule of economics is that the smaller the number of suppliers, the greater the opportunity to exploit market power at the expense of customers.
Asda and Sainsbury’s said food retailing was already hyper-competitive due to the arrival in the UK of Aldi and Lidl, and the ambitions of Amazon in the sector. But the CMA was having none of it, rejecting the idea that the proposed merger would help the squeezed middle against the discounters on the one hand and the upmarket brands on the other.
Nor did it have any truck with the suggestion it might give the deal the go-ahead if Asda and Sainsbury’s agreed to sell some of their stores. Using the bluntest of language, the CMA said the only effective way to address its concerns was to block the deal.
There was no immediate sign, despite rumours of a private-equity sale, that the US retailer Walmart would dispose of Asda in a kneejerk reaction to the collapse of the merger. But pressure on Sainsbury’s and its chief executive, Mike Coupe, has certainly intensified.
Why? Because Coupe made a catastrophic misjudgment in assuming the CMA would wave the deal through. Because he compounded the error by allowing himself to be filmed singing “We‘re in the Money” on the day the merger plan was announced. And because, judging by the fall in Sainsbury’s shares, taking them close to a 30-year low, investors don’t think there is a plan B. To shake off the sense he is past his sell-by date, Coupe needs to come up with a different song – and fast.