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Sainsbury’s and Asda pledge to deliver £1bn price cuts if merger is approved

Reductions on everyday items of 10 per cent promised by supermarket giants, as they plead to get deal over the line

Ben Chapman
Tuesday 19 March 2019 12:45 GMT
Price cuts will be implemented within three years of a merger going through and will be funded by an estimated £1.6bn in cost savings
Price cuts will be implemented within three years of a merger going through and will be funded by an estimated £1.6bn in cost savings (Getty)

Sainsbury’s and Asda have promised that their merger will deliver £1bn in savings for shoppers.

The supermarkets on Tuesday pledged to cut prices on everyday items by 10 per cent if the competition regulator waves the deal through.

The Competition and Markets Authority has raised serious concerns about the deal prompting the two supermarkets to make a series of promises in a bid to get the deal approved.

Price cuts will be implemented within three years of a merger going through and will be funded by an estimated £1.6bn in cost savings, Sainsbury’s and Asda said.

They aim to fund the cuts by securing lower purchase prices from suppliers, as well as reducing costs by sharing joint services.

Sainsbury’s promised to pay small suppliers within 14 days and Asda will continue to pay its small suppliers within that time frame, allaying concerns that SMEs could be squeezed by the market power of the combined firm.

Argos stores will also be put into Asda, the supermarkets said.

Sainsbury’s also promised to cap gross profit margins on fuel at 3.5p a litre for five years, while Asda will guarantee its existing fuel pricing strategy.

The deal currently hangs by a thread after the Competition and Markets Authority found 629 locations where it thought competition would be substantially reduced by a tie-up. A further 290 areas would see a smaller reduction in competition.

If a deal were to be approved the regulator would likely require Sainsbury’s and Asda to sell hundreds of stores or even one of their brands.

Sainsbury’s criticised the CMA’s report which it said contains “significant” legal and economic errors.

“This is compounded by the CMA’s choice of a threshold for identifying competition problems that does not fit the facts and evidence in the case and that is set at an unprecedentedly low level, therefore generating an unreasonably high number of areas of concern,” the grocery firm said.

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Sainsbury’s chief executive Mike Coupe and Asda boss Roger Burnley said: “We are trying to bring our businesses together so that we can help millions of customers make significant savings on their shopping and their fuel costs, two of their biggest regular outgoings.

“We are committing to reducing prices by £1bn per year by the third year, which would reduce prices by around 10 per cent 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.

“We hope that the CMA will properly take account of the evidence we have presented and correct its errors. We have proposed a reasonable yet conservative remedy package and hope the CMA considers this so that we can deliver the cost savings for customers.”

The CMA is expected to issue a final report on the deal by 30 April.

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