Sainsbury's Asda merger: Competition watchdog launches formal investigation

CMA will consider whether the deal could lead to less choice, higher prices or worse quality services for shoppers

The merger will now be subject to what is known as a Phase 1 probe to assess how competition could be affected (Getty)

The competition watchdog has launched a formal investigation into the merger between Sainsbury's and Asda.

The two supermarket chains announced the deal in May that would create a giant with around £51bn in sales.

Now the Competition and Markets Authority (CMA) will look into the merger after fears that the combined company could reduce choice for consumers.

The merger will now be subject to what is known as a Phase 1 probe to assess how competition could be affected.

The CMA will consider whether the deal could lead to less choice, higher prices or worse quality services.

The investigation will also consider whether the merged company could squeeze suppliers by using its increased buying power.

Sainsbury's and Asda have asked the CMA to use a "fast-track" process for the first phase of the investigation.

Companies tend to do this when it seems clear that the watchdog will find competition concerns and then decide to carry out a more in-depth probe.

If the merger is successful, the combined firm could account for around 30 per cent of UK grocery sales.

A spokesperson for Sainsbury’s said: “The combinatiom... will benefit consumers and the wider UK economy. We are confident in our case and we look forward to continuing to work closely with the CMA.”

An Asda spokesperson said: “We are confident the CMA will take a rigorous and evidence-based approach to their assessment of this deal and we will work closely with them to support the process.”

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Analysts predict that the two companies will have to sell a number of stores in order to convince authorities that the deal will not harm competition.

Sainsbury's and Asda are seeking to join forces to battle unprecedented shifts in the retail industry as buying shifts online and the threat of competition from Amazon looms.

The e-commerce titan has so far made only tentative steps into groceries in the UK but is feared by the big supermarkets.

Sainsbury's purchase of Argos in 2016 gave it an online operation it hopes will allow it to take the fight to Amazon while a tie-up with Asda will mean greater scale.

Sainsbury's boss Mike Coupe has said that scale will allow it to slash prices by around 10 per cent on average, a claim that has brought concern from suppliers, many of whom are already operating on slim margins.