The Competition and Markets Authority (CMA) said it has “extensive” concerns over the proposed merger between supermarkets Sainsbury’s and Leeds-based Asda, warning it could lead to higher prices and reduce quality in store and online.
The CMA said potential options to address its concerns could include forcing the chains to sell off a “significant” number of stores and potentially offloading either the Sainsbury’s or Asda brand.
The competition watchdog warned it believed it would be “difficult for the companies to address the concerns it has identified”.
In provisional findings of its so-called Phase 2 investigation, it said that as well as the impact on stores and online, it could lead to higher fuel costs at more than 100 locations where Sainsbury’s and Asda petrol stations overlap.
Stuart McIntosh, chairman of the independent inquiry group carrying out the CMA investigation, said: “These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day.
“We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK.”
Sainsbury’s said: “We fundamentally disagree with the provisional findings.
“These misunderstand how people shop in the UK today and the intensity of competition in the grocery market.
“The CMA has moved the goalposts and its analysis is inconsistent with comparable cases.”
It added: “We are surprised that the CMA would choose to reject the opportunity to put money directly into customers’ pockets, particularly at this time of economic uncertainty.
“We will be working to understand the rationale behind these findings and will continue to make our case in the coming weeks.”
The watchdog said selling one of the two brands could “recreate the competitive rivalry lost through the merger”.
It is consulting on the provisional findings and also the possible remedies, with responses due by March 13 and March 6 respectively.
The CMA will publish its final report by April 30, having recently extended the original deadline by almost two months.
Asda reported that sales continued to rise in the fourth quarter, yesterday.
Like-for-like sales were up 1 per cent, marking the seventh consecutive quarter of growth.
Meanwhile net sales rose by 2.7 per cent.
Asda boss Roger Burnley said it had been another “challenging” period in retail, but fourth quarter sales were driven by higher demand for the grocer’s own-brand products, especially the premium Extra Special range.