Whether or not the competition regulator sees the Aldi and Lidl supermarkets as suitable places for a “one-stop shop” is critical to the outcome of the proposed merger between ASDA and Sainsbury’s.

Meanwhile, a GlobalData survey has found that almost as many grocery shoppers think Aldi (60%) and Lidl (55%) are suitable places for doing a big food shop as the big four (Tesco, Asda, Morrisons and Sainsbury’s).

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If all were available to you (located nearby), which of the following supermarkets would you consider suitable for doing a ‘big food shop’?

Sample: 1,593 grocery shoppers who do a ‘big food shop’ once a week or less frequently.

Sainsbury’s Asda merger

The UK’s Competition and Markets Authority (CMA) is currently in phase two of its investigation and is considering the impact on competition that the deal would have in each location where ASDA and Sainsbury’s stores overlap. In the past, the CMA has considered only stores greater than 1,400sqm to be suitable places for “one-stop shops”, where a grocery consumer could be considered to get everything they need.

While Aldi and Lidl have grown in market share over the last 10 years – opening stores in many of the catchments that the CMA is looking at – most of their stores are smaller than the 1,400sqm threshold.

Too high a number of disposals?

If the CMA uses the same distinction, and rules that Aldi and Lidl stores typically do not offer competition to larger stores, then it is likely to decide that many more catchment areas will have competitiveness significantly eroded by the merger, and demand a far higher number of disposals. That is, the CMA may rule that for the merger to go ahead the retailers must sell some of their stores in the interest of broader competition.

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If the weighted share of shops methodology is used, instead of the four to three fascia test (in past supermarket investigations, a local market was deemed problematic where the number of competing players fell from four to three or less), it gives the CMA the ability to weight competitors by other factors, such as alignment of customer demographic, and closeness to the Asda and Sainsbury’s stores.

But if it excludes all Aldi and Lidl stores under 1,400sqm from the analysis of Asda and Sainsbury’s larger stores, then we believe that the CMA will ask for more disposals than the merging parties are willing to allow in order for the merger to continue.