Blog: Has the CMA lost its merger control?
David Flint and Rebecca Ferguson look at how the CMA’s approach to mergers in the grocery market is changing.
The Competition and Markets Authority (CMA) are responsible for controlling mergers of companies, to ensure that such mergers do not pose competition risks that negatively impact upon consumers. Recently, the CMA have come under scrutiny from those in the grocery market for a number of decisions which have seen large dominant companies merge, arguably to the detriment of the markets and consumers. Recent decisions have left many wondering whether the CMA will ever intervene in grocery market mergers or whether it considers the market to be “anything goes!?”
Earlier this year, Amazon purchased Wholefoods, the American grocery market which specialises in foods without artificial additives, colours, flavours or hydrogenated fats, in a deal worth $13.7 billion. This sparked major concern amongst UK supermarkets as they feared Amazon acquiring retail outlets, from which they could directly compete with larger supermarkets.
On this backdrop of uncertainty in the grocery market, the CMA have been criticised for a number of recent merger decisions which approve controversial mergers in the grocery market that some fear will reduce choice for consumers and harm competition.
The recent proposed merger between Tesco and Booker (the UK’s largest wholesaler) was doubted by many due to the competition concerns of the increased buying power the merger would bring.
The CMA however, gave the merger unconditional approval on 20th December 2017, confident that the merging entities did not directly compete as Tesco is in the retail market and Booker in the wholesale market. Concerns regarding the competition in both markets post-merger were not major, with the CMA citing strong competition in both markets and the inability for the merged entity to raise prices and reduce competition in wholesale buying. The CMA surveyed hundreds of retailers and found that most use more the one wholesaler and frequently switch, therefore the new Tesco-Booker merged entity would not be able to restrict competition or raise prices in the markets.
This decision is in direct contrast to previous CMA merger decisions which heavily challenged merging undertakings and required assurances and in-depth investigations in most cases. In 2015, the CMA eventually cleared the Poundland and 99p Stores merger, after a Phase 2 investigation. A similar process was involved in the 2010 Asda acquisition of Netto and the 2004 Morrison’s purchase of Safeway, where the companies had to give the CMS undertakings and/or divest assets/stores to alleviate competition concerns.
What does this mean?
It seems the CMA are no longer sticking to the “four big player” ideal in the grocery market and have begun to see a bigger picture. With internet shopping and grocery chains popping up (such as the increase in market share of both Aldi and Lidl), the CMA seems to recognise that the grocery market is forever changed and therefore some merged entities do not pose as much of a competition risk as they did previously when groceries were only bought from stores – mainly the big four!
Commentators have argued that the CMA could therefore approve long-awaited mergers such as Sainsbury and Morrison’s or Sainsbury and Marks and Spencer.
It seems that as the internet and online grocery shopping has grown more popular, the bricks and mortar retailers have faced increased competition and therefore by merging, they may be able to stay ahead of the market. However, such mergers do pose concerns from a competition perspective as the big four supermarkets are threatening to be reduced to three – less choice means less competition – or do we now consider internet grocery shopping to fill the void?
- David Flint is a partner and Rebecca Ferguson is a trainee at MacRoberts