The merger of Sainsbury’s and Asda could damage supermarket competition in hundreds of areas, the competition watchdog has warned.
The Competition and Markets Authority (CMA) said the companies’ stores overlap in 463 areas.
It said there could be be a “substantial lessening of competition” if the supermarkets were “insufficiently constrained”.
Sainsbury’s and Asda said customers would be the merger’s “big winners”.
The CMA said: “At a local level, the parties’ stores overlap in several hundred local areas across the UK.
The findings were contained in the CMA’s phase one investigation into the £12bn merger.
As a result the supermarkets may have to sell off hundreds of supermarkets for the merger to be given the green light.
Last week the CMA launched the second phase of its investigation and Sainsbury’s and Asda have called on it to include other rival supermarkets in its calculations of risk to competition.
“The grocery market has changed significantly in the last decade and is more competitive than ever, with the rise of discount formats, online grocery and food delivery businesses,” Sainsbury’s and Asda said in a statement.
“We look forward to working with the CMA on the Phase 2 inquiry, where we expect it to conduct a full review of the market and take these changed market dynamics into consideration.”
The deal would create chain with revenues of £51bn a network of 2,800 Sainsbury’s, Asda and Argos stores.
Analysis: By Emma Simpson, Business Correspondent
So what to make of these initial findings from the CMA?
It’s used traditional methodology to look at how these two businesses – excluding convenience stores – overlap in individual catchment areas.
Crucially, this process excluded rivals like Aldi and Lidl. These two chains now account for a whopping 13% of the UK grocery market, and are continuing to grow.
The real test is what weighting, if any, they give to these discounters and other rivals when they really get stuck into vetting this mega merger.
We should get some more detail on how they’ll approach this in the next few weeks.
The CMA says the fact that the parties’ stores overlap in 463 local areas shouldn’t be viewed as a starting point.
But this very large number certainly highlights just why this controversial tie up is being heavily scrutinised.