Sainsbury’s-Asda pledge to cut prices in bid to salvage merger deal

Sainsbury’s and Asda have pledged to make one billion pound price cuts in a bid to win CMA approval for their proposed 12 million pound merger to go ahead.

In a statement released on Tuesday, Sainsbury’s and Asda said they would deliver one billion pounds of lower prices annually by the third year following the merger, investing 300 million pounds in the first year and a further 700 million pounds over the following two years. The groups said this would reduce prices of everyday items by around 10 percent.

Sainsbury's also said it would cap its fuel gross profit margin to no more than 3.5 pence per litre for five years, and would move to pay small suppliers with a turnover of less than 250 thousand pounds within 14 days, while Asda would continue to pay its small suppliers within 14 days, in line with existing commitments.

The retailers added that the price commitments would be independently reviewed by a third party and that performances would be published every year.

"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,” Sainsbury's chief executive, Mike Coupe, and Asda chief executive, Roger Burnley, said in a joint statement.

"We are committing to reducing prices by one billion pounds per year by the third year which would reduce prices by around 10 percent 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".

In February, The UK’s competitive regulator, the Competition and Markets Authority (CMA), left the deal in doubt by saying that it would push up prices and reduce competition in the industry.

In its Phase 2 investigation, the CMA said the deal “could lead to a worse experience for in-store and online shoppers across the UK through higher prices, a poorer shopping experience, and reductions in the range and quality of products offered”, and that it could lead to a “substantial” decrease of competition both locally and nationally.