Sainsbury's-Asda merger faces crunch time

As Sainsbury's and Asda are currently waiting to hear if their proposed merger can go ahead, the reshaping of the UK's supermarket sector could be taking place quite shortly. Should the deal go through, the combined group would knock Tesco off its perch as the UK's biggest supermarket chain.

But concerns over whether shoppers could face higher prices or less choice as a result of the tie-up has led the UK's competition watchdog to put the sector under the microscope.

Sainsbury's and Asda - which is owned by US retail giant Walmart - are the second and third largest supermarket chains in the UK. As the UK's grocery market is fiercely competitive, both chains are looking to respond to pressure from discounters such as Aldi and Lidl, to be more competitive against Tesco, and to be able to counter online threats such as the rise of food delivery apps and Amazon.

Richard Lim, chief executive of research consultancy Retail Economics, says the "biggest driver here is about scale". For example, by combining their businesses, the firms can push for the lowest prices from suppliers. The idea is that if one supermarket is paying 10p for a tin of beans, while the other is paying 11p, both supermarkets would now be able to pay the lower price.

Sainsbury's expects to make cost savings of £350m just from this kind of "price harmonisation", Lim says. However, according to¸ MPs have warned it would not be easy to get the big suppliers to agree to this, meaning thousands of small suppliers could get squeezed.

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