Asda is likely to sell off a number of the forecourt sites it acquired from the Co-op last year after the Competition and Markets Authority (CMA) concluded the £600m takeover could lead to a reduction in competition in 13 local areas.
Where the CMA has raised similar concerns in previous forecourt takeovers, such as MFG’s purchase of MRH and the acquisition of Asda by EG Group’s owners, the companies have sold off sites to avoid an in-depth investigation.
In January the CMA opened a preliminary investigation into the completed acquisition by Asda of Arthur Foodstores Limited, a company set up by Co-op to sell its 132 petrol forecourt sites and attached grocery stores.
The CMA’s investigation focused on a number of local areas in which Asda and the Co-op sites that it acquired compete to provide fuel or groceries to customers. The CMA found that the deal raises competition concerns in 13 locations across the UK, in each of which the merging businesses currently compete for customers and would not face sufficient competition after the merger.
It concluded this could lead to consumers and businesses in these areas facing higher prices or lower quality services when shopping or buying fuel.
Asda told the CMA that competition concerns would not arise in these areas because the merger would enable Asda to bring its low-cost pricing model to more customers. But as the CMA’s investigation in this case focused on local areas in which the merging businesses currently compete for customers, competition concerns only arise in areas in which Asda is already an important option for customers, who already have access to Asda prices. The CMA found that allowing Asda to acquire more sites in those areas, leaving it facing insufficient competition in future, could therefore risk worse outcomes for customers.
Colin Raftery, CMA senior director of mergers, said: “Groceries and fuel account for a large part of most household budgets. As living costs continue to rise, it’s particularly important that deals that reduce competition among groceries and fuel suppliers don’t make the situation worse.
“While competition concerns don’t arise in relation to the vast majority of the 132 sites bought by Asda, there’s a risk that customers could face higher prices or worse services in a small number of areas where Asda would face insufficient competition in either groceries or fuel after the deal goes through.”
Asda now has five working days to offer legally binding proposals to the CMA to address the competition concerns identified. The CMA would then have a further five working days to consider whether these proposals address its concerns, or if the case should be referred to an in-depth, Phase 2 investigation.
Alex Haffner, partner and specialist competition and regulatory lawyer at law firm Fladgate, commented: “The retail supply of motor fuel has been under extra scrutiny from the UK competition authorities with particular concerns raised that retailers may not have been passing on recent falls in the wholesale cost of fuel to consumers.
“Against that background, the CMA’s announcement that Asda’s owners may need to divest certain of the forecourts acquired from the Co-op is unsurprising and follows on from similar decisions reached in other mergers affecting the same sector in recent years.
“That said, the remedies proposed by the CMA is clear-cut and Asda may well see it as a price worth paying to avoid the uncertainties of a second stage merger investigation which would otherwise materialise should it decide not to accept them.”
The CMA revealed that one of the 13 locations, in Earlston, Scotland, raised competition concerns in relation to the supply of both petrol and groceries. The 10 other petrol stations that raised concerns are in Barnard Castle; Calcutt, Caledonian Road; Gnosall (Station Road); Lauder; Minsterley; Oakdale (Ripon Road), Harrogate; Rochester; Stonehaven (Kirkton Road); and Weycock Cross in Barry. The two further areas that raised concerns in relation to groceries are the Co-op mid-size stores in St Columb Minor (Henver Road), and East Peckham.