Mon | Mar 25, 2019

In blow to Walmart, UK regulator casts doubt on supermarket merger

Published:Thursday | February 21, 2019 | 12:11 AM

British regulators say the proposed supermarket merger between Sainsbury’s and Walmart’s Asda unit would push up prices and reduce quality for shoppers, casting doubt on a deal that would create the country’s biggest grocery chain.

It also serves as yet another regulatory blow to Walmart at a time when it’s trying to overhaul its international business and focus on big growth opportunities overseas. Walmart, which last year bought a US$16-billion controlling stake in India’s online retailer Flipkart, is now facing tighter rules by the Indian government as it curbs how foreign e-commerce companies operate.

Britain’s Competition and Markets Authority, CMA, in a preliminary report, said Wednesday it would be “difficult for the companies to address the concerns it has identified”, and that a significant number of stores would probably need to be sold before it gains approval.

Stuart McIntosh, chairman of the independent inquiry, says “shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK”.

Walmart announced last April that it was selling its Asda division to Sainsbury’s for £7.3 billion (US$8.27 billion).

Walmart, which operates stores under 55 banners in 27 countries outside the United States, has faced challenges as it tries to import its low-price strategy overseas.

The Bentonville, Arkansas-based company gave up in Germany and South Korea in 2006, and it closed 10 per cent of its Brazil stores in 2016 as it looked to restructure its operations. In many overseas markets, Walmart has lacked the scale to press local suppliers on price as it does in the United States.

Walmart’s international business, which accounts for about 24 per cent of its total revenue and rang up $120.8 billion in sales for its latest fiscal year ended January 31, has seen choppy growth. In the just-ended fiscal year, its international sales rose 2.3 per cent, while its Walmart US division rose 4.1 per cent.

But the retailer has been working to respond to the various landscapes and differing consumer behaviours, and teaming up with local partners when it realises it can’t do it solo. In China, where more than 700 million people are online, it has a partnership with Chinese online retailer JD.com.

Walmart’s shares slipped more than three per cent, to US$99.04, in afternoon trading. Sainsbury’s shares fell by more than 16 per cent.

In a joint statement, Asda and Sainsbury said they will continue to make a case to regulators who “misunderstand how people shop in the UK today.

AP