Affected market: Grocery retailing
The OFT’s decision on reference under section 33 given on 4 July 2005.
Full text of decision published 12 July 2005.
Please note that square brackets indicate information excised, or
exact figures replaced by a range, at the parties’ request for reasons
of commercial confidentiality.
Asda Stores Limited (Asda) is a national UK grocery retailer. Asda
is a subsidiary of Wal-Mart Stores, Inc., (Wal-Mart), a leading US
retailer listed on the New York Stock Exchange. In the year ending 31
December 2003, Asda’s UK turnover was £13.1 billion.
Wm Morrison Supermarkets plc (Morrison) is also a national UK
grocery retailer. In the year ending 30 January 2005, Morrison’s UK
turnover was £12.1 billion.
On 8 March 2004, Morrison acquired Safeway plc (Safeway). Asda proposes
to acquire 12 of the 13 former Safeway stores in Northern Ireland (the
Target Stores) from Morrison.
As a result of this transaction Asda and the Target Stores will cease to
be distinct. The UK turnover of the Target Stores exceeds £70 million,
so the turnover test in section 23(1)(b) of the Enterprise Act 2002 is
The parties overlap in grocery retailing.
In recent years, the grocery retailing sector has been examined by both
the Competition Commission (CC) and the OFT. The types of grocery
shopping ‘trips’ made by consumers and recognised in previous cases
- one-stop shopping
- secondary shopping, and
- convenience shopping.
Eleven of the Target Stores are one-stop stores (over 1,400 square
metres, see [note 1]), which are able to cater for the full
range of grocery shopping trips, including convenience shopping and
one-stop shopping. The remaining store is a smaller store (under 1,400
The CC and OFT have previously found that one-stop stores are generally
not constrained in their competitive behaviour (pricing, range/service)
by smaller stores. On the other hand, one-stop stores are likely to
provide a competitive constraint on smaller stores within a certain
catchment area for the types of shopping that these latter stores offer.
Since Asda is not currently active in Northern Ireland, no competition
concerns arise in this case whether the relevant product market is
narrowly defined as one-stop shopping, or more widely as all types of
The CC and OFT have previously found that there are national and local
aspects to competition in grocery retailing. All of the Target Stores
are located in Northern Ireland, where Asda currently has no stores.
Accordingly, no competition concerns arise in this case whether the
relevant geographic market is defined nationally or locally.
Shares of supply
Asda operates 276 one-stop stores through mainland Britain. Its current
national (GB) share of grocery sales from one-stop stores is 21.3 per
cent (see [note 2]). The equivalent TNS figure for national (GB)
share of all grocery sales is 13.3 per cent. Asda estimates that the
Target Stores have an overall UK share of all grocery sales of
approximately [less than 0.5] per cent.
Barriers to entry and expansion
Previous cases have noted that barriers to entry to the one-stop segment
are high. Economies of scale, in particular favourable buying terms for
large incumbent supermarkets and planning restrictions, have been
instrumental in restricting entry.
However, since this transaction does not raise competition concerns, it
is not necessary to conclude definitively on barriers to entry in this
As customers are usually individuals, countervailing buyer power does
not arise in relation to this transaction.
Supermarkets themselves are recognised to have, and to exercise,
significant upstream buyer power in respect of their suppliers. One
third party raised the concern that Asda would exercise its buyer power
in Northern Ireland with a detrimental effect on local suppliers.
However, Asda estimates that the transaction will result in an increment
to its share of groceries purchased from suppliers in the UK of
approximately [less than 0.5] per cent. This is unlikely to be
sufficient to allow it to exercise any additional leverage over its
suppliers. Within Northern Ireland, the transaction will have a neutral
effect on buyer power since one large national grocery retailer will be
replaced by another.
THIRD PARTY VIEWS
A small number of third parties provided views on this transaction, and
only two of them raised concerns. One identified Asda’s buyer power as
an issue (discussed above). The other raised concerns about
consolidation in the grocery retailing sector, which were not specific
to this transaction.
Asda has no stores in Northern Ireland (or elsewhere on the island of
Ireland) so the proposed acquisition raises no local competition
concerns. The proposed acquisition will result in a de minimis increment
to both Asda’s national share of one-stop sales and of all grocery
sales, so no competition concerns arise at the national level.
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- As defined by the Competition Commission in Supermarkets: A report on
the supply of groceries from multiple stores in the United Kingdom
(2000, Cm 4842) (the Supermarkets Report 2000); and Safeway plc and Asda
Group Limited (owned by Wal-Mart Stores Inc); Wm Morrison Supermarkets
PLC; J Sainsbury plc; and Tesco plc (2003, Cm 5950) (the Safeway
- TNS, 52 weeks ending 27 March 2005.