Sainsbury’s has promised to publish an annual breakdown of the £1bn-worth of price cuts it has promised shoppers if it merges with Asda, as it scrambles to reverse the competition watchdog’s opposition to the £7bn deal.
Many analysts think the tie-up between Sainsbury’s and Asda, the UK’s second and third largest supermarket chains respectively, is doomed after the Competition and Markets Authority (CMA) warned last month that the tie-up threatened to push up prices and reduce the choice and quality of products on sale.
In its official response to the CMA’s provisional findings, published on Tuesday, Sainsbury’s said £1.6bn of cost savings would come from combining the chains, which together own close to 2,800 supermarkets, convenience stores and petrol stations. Two-thirds of that sum would be funnelled into lowering the price of everyday groceries by 10%, it said.
In a joint statement, the Sainsbury’s chief executive, Mike Coupe, and the Asda chief executive, Roger Burnley, said: “We are committing to reducing prices by £1bn 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.”
Sainsbury’s said the price commitments would be monitored by a third party such as one of the major accountancy firms, and could be included in its annual report, thereby “holding them to public account” over promises made ahead of the merger. It is promising grocery price cuts of £300m in the first year, rising by another £700m over the next two years, money that would come from securing lower prices from suppliers and opening branches of its Argos chain in Asda.
Sainsbury’s has also offered to put a cap on the profits made by its fuel stations, after the CMA flagged that prices “could rise at a large number of their petrol stations”.
Coupe was furious about the CMA report when it was published in February. The watchdog took a much dimmer view of the proposed deal than the City had expected, with a list of what looked like insurmountable remedies that included selling off one of the brands anddivesting around 300 supermarkets.
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“They have fundamentally moved the goalposts, changed the shape of the ball and chosen a different playing field,” Coupe said at the time. “A UK plc with Brexit looming and a completely unpredictable set of competition rules, who would invest in this country?”
Sainsbury’s reiterated that the companies “strongly disagree” with the CMA’s provisional findings and said its analysis contained “significant errors”. Its full submission to the CMA, which is yet to be made public, contains a more conservative store disposal figure, thought to be more in keeping with the 150 originally anticipated by analysts.
Bruno Monteyne, an analyst at the stockbroker Bernstein, said: “We think it’s time for Sainsbury’s to start thinking about plan B, without Asda.”