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 satisfied.
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 include:
- 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 square metres).
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 grocery shopping,
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 case.
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 Report).
- TNS, 52 weeks ending 27 March 2005.