This article is more than 2 years old

This article is more than 2 years old

The competition watchdog has launched a formal investigation into whether the proposed £12bn merger between Sainsbury’s and Asda could hurt consumers and the small businesses that supply the supermarkets.

The Competition and Markets Authority said it would look at how the deal could drive up prices and affect quality in the groceries market as well as in the areas of fuel, electricals, children’s toys and clothing.

It will also look at whether the enlarged company could use its increased buying power to squeeze suppliers and the potential knock-on effects for shoppers.

The business minister, Greg Clark, wrote to the CMA this year, asking it to consider the “possible impact on the supply chain”.

Sainsbury’s and Asda have previously said suppliers will have to bear the brunt of a pledge to reduce the price of everyday products after their merger, which was announced in April.

Andrea Coscelli, the chief executive of the CMA, said: “About £190bn is spent each year on food and groceries in the UK, so it’s vital to find out if the millions of people who shop in supermarkets could lose out as a result of this deal.

“We will carry out a thorough investigation to find out if this merger could lead to higher prices or a worse quality of service for shoppers and will not allow it to go ahead unless any concerns we find are fully dealt with.”

The merger would create a company with a grocery market share of 31.4%, according to data analysis firm Kantar Worldpanel.

Some industry insiders have raised concerns about the emergence of a “duopoly” because the enlarged Sainsbury’s and Tesco would control nearly 60% of the UK grocery retail market.

It is expected that scores of stores will have to be offloaded as part of the competition review.

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But the CMA said it was precluded by law from looking into whether the tie-up would lead to job losses as the merged entity trims areas of overlap between the two businesses.

The watchdog was responding to concerns raised by the Conservative MP Robert Halfon, who told the regulator in a letter that Sainsbury’s and Asda provide “hundreds” of jobs in his Harlow constituency.

He said he believed the companies had given assurances that no jobs would be lost in the near future but called for a guarantee that jobs would be protected “long into the future”.

Competition investigations usually move forward in phases, with the first determining whether a deal can be immediately cleared, or whether further scrutiny is required.

But Sainsbury’s and Asda have asked the CMA to move to the in-depth second phase of the investigation through a fast-track process.

The CMA said it expects to agree to the request unless it receives valid objections by 31 August.

The shares-based deal is expected to create a combined company worth £15bn including debt, led by current Sainsbury’s boss Mike Coupe. It is envisaged that his opposite number at Asda, Roger Burnley, will report to him.

The proposed new retail giant will have 2,800 stores and annual sales of more than £50bn. The plan is to retain both retail brands because they have different heartlands and attract different sorts of shoppers.

Vince Cable, the Liberal Democrat leader and former business minister, said this year the proposed merger could create “even more concentrated local monopolies”. He challenged Andrew Tyrie, the incoming boss of the CMA, to reverse a history of “spineless” inquiries by conducting a robust investigation.

“This is an early test for Andrew Tyrie and an important one,” Cable said. “The CMA really needs to show some teeth after previously being soft in its remedies in the audit, banking and energy sectors.”