Sainsbury and ASDA two of the largest supermarket chains in UK are awaiting decision of competition watchdog to see if their proposed merger gets cleared. If cleared the merger can change the landscape of UK’s supermarket sector as together they could knock down number one Tesco from its pedestal. But there are concerns that this formidable combination could force shoppers to pay higher prices for their essentials or their choices would become limited which is why the competition watchdog is closely scrutinizing the deal terms. ASDA which is owned by Walmart is the third largest supermarket chain while Sainsbury is the second largest chain in UK.
Both these chains decided to get together to face competition from discount retailers like Aldi and Lidl and increased pressure from Tesco as the UK grocery market is fiercely competitive. Both are also facing margin threats from online retail giants like Amazon and food delivery apps that are now dime a dozen across the country. According to market researchers this combined purchasing power will help them to pressurize their suppliers for lower prices that can be used to attract more buyers from competitors and also have better price harmonization between both chains.
Sainsbury has estimated that it will make savings of around £ 350 million from this initiative of price harmonization. When UK’s MPs’ expressed concern that this situation could squeeze small suppliers they were assured by Sainsbury CEO that savings would be made from large suppliers only that supply majority of their products. Both chains have assured that this merger will lead to reduction in prices of food products by 10 percent and if the Brexit works out smoothly then both would be able to pass on a larger part of cost savings to customers. But critics say that Sainsbury has not specified details about which products would experience price cuts and within what time frame and how savings can be made.