Morrisons raises ‘duopoly’ concerns over Asda/Sainsbury’s merger

Bradford-headquartered supermarket Morrisons has responded the the Competitions and Markets Authority (CMA) investigation into the proposed £15bn merger of Leeds-headquartered Asda and Sainsbury’s.

Responding to the CMA’s investigation, Morrisons has now lodged its feedback – along with other businesses in the sector including the final Big 4 competitor, Tesco, as well as discounters Lidl and Aldi.

The CMA report has now been published detailing Morrisons’ response which was given to the CMA at a hearing on November 9. The report said that the proposed merger “will result in the creation of an effective duopoly formed by Tesco and the merged entity, as they will be controlling in excess of 60 per cent of the market.

“Morrisons is concerned that, as a result of the merger, prices may increase between those two companies because it would mean the loss of Asda as a major competitive force and, consequently, there would be less competition in the market. Morrisons mentioned that it would be possible for Tesco and the merged entity to compete less fiercely and sustain this position for any length of time, as they will be controlling the majority of the market.”

Morrisons said that the creation of this duopoly could mean that Tesco and the merged entity would potentially increase their delivery charges in order to make their businesses more profitable, given the lack of competition in some parts of the UK.

The Bradford-headquartered supermarket added that each of Sainsbury’s and Asda are important suppliers of non-grocery products both nationally and locally, which could be adversely affected by the merger. The CMA report states: “Given the scale of general merchandise, the merged entity could potentially raise prices in general merchandise to, potentially, invest elsewhere in their business to compete with other grocery retailers, such as discounters.”

Morrisons also raised concerns that the proposed merger could have an impact on the merging parties’ incentive to innovate, in particular, in own-brand products. The report added: “Morrisons said that some of the synergies that the merging parties expect to achieve would be dependent on harmonisation of their own-brands, and this would have an impact on customers, as the quality of the merging parties’ own-brand products differs.

The supermarket also told the CMA that to the extent that the merging parties are able to drive purchase prices down and squeeze suppliers further, those suppliers are likely to react and to seek to recover the loss in profitability through other means – like through their own raw material suppliers, price increases on other products/to other retailers, or by exiting the market – which could affect the future relationship that Morrisons has with those suppliers.

Morrisons also noted that, if as a result of the merger, the merging parties are seen as being an important trading partner for suppliers, because of their scale, it could mean that other grocery retailers, such as Morrisons, are disadvantaged in other ways as a result, with supply shortages during periods of high demand as suppliers focus on serving the largest retailers first.

The CMA report added: “Morrisons said that the fact that there would be two grocery retailers of approximately the same size as Tesco is now, could exacerbate this issue for smaller supermarkets.

“Morrisons said that, as a retailer grows its business, this would potentially enable it to get better prices from suppliers, as suppliers will be able to sell more volume through that retailer.

“Morrisons questioned whether the merging parties would be able to lower their costs of goods after the merger, as the merger, in itself, does not give rise to volume or growth opportunity because suppliers are already supplying both merging parties, and suppliers are unlikely to invest if they cannot get new volume growth in exchange.”