Sainsbury's and Asda promise 10% price cuts if merger is approved

UK grocery giants Sainsbury's and Asda are promising to slash their prices by around 10% on everyday items if they're able to merge their operations.

In a joint statement released on Tuesday, Sainsbury's and Asda said they planned to invest a total of £1bn in the newly-formed business over the first three years. The companies pledged that this would ultimately lead to £1bn in annual cost savings for shoppers.

"The two businesses are proposing to merge so that they can lower prices for customers in an increasingly competitive market, while improving quality and service," Sainsbury's and Asda said in a written statement.

The two retailers are struggling to convince the UK government's top competition watchdog about the merits of their £7.3bn takeover plan, which was designed to create a massive shopping giant with enough heft to challenge industry leader Tesco.

But Sainsbury's and Asda on Tuesday pledged to make a number of post-merger commitments, should it be approved.

It includes investing £1 billion a year in lowering prices by the third year of the deal completing, equating to a 10% cut on everyday items.

The price investment will be funded by an estimated £1.6 billion in cost savings, which will be secured by lowering purchase prices from suppliers, putting Argos stores into Asda, jointly buying shared goods and services and reducing central costs.

Sainsbury's also promised to cap its fuel gross profit margin to no more than 3.5p per litre for five years, while Asda will guarantee its existing fuel pricing strategy.

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 £1 billion per year by the third year, which would reduce prices by around 10% 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."

Sainsbury's will also move 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 disadvantaged by the deal.

Competition and Markets Authority's ruling imminent

The Competition and Markets Authority (CMA) ruled last month that the proposed grocery deal would be bad for shoppers and push up prices, finding 629 areas where there could be a substantial reduction in competition in supermarkets as a result of the tie-up, and a further 290 areas where online competition could be reduced. The regulator has the ability to block the deal, with a final decision expected at the end of April.

Sainsbury's has said the CMA's report contains "significant errors", both legal and economic.

"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.

The CMA added that it would be "difficult for the companies to address the concerns it has identified".

Furthermore, Sainsbury's CEO Mike Coupe previously said in a BBC interview that the competition watchdog's warning about the takeover plan was "outrageous."

Tesco dominates the UK grocery scene with a nearly 22% market share, according to annual data from research firm Euromonitor. Sainsbury's is the second largest with just over 12% of the market, followed by Asda with 11%.

"The two businesses are proposing to merge so that they can lower prices for customers in an increasingly competitive market, while improving quality and service," Sainsbury's and Asda said in a written statement.

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