OFT closed case: Anticipated acquisition by Asda Stores limited of four one-stop stores from WM Morrison Supermarkets plc
Affected market: Supermarkets
Please note that square brackets indicate exact figures replaced by a range, at the parties' request.
The OFT's decision on reference under section 33 given on 7 October 2004.
Asda Stores Limited (Asda) is a large grocery retailer, operating 265 one-stop grocery stores in GB. It is owned by Wal-mart Stores Inc., a large US retailer. Wm Morrison Supermarkets plc (Morrison) is a large grocery retailer, which also operates a wide variety of grocery stores.
On 8 March 2004, Morrison acquired Safeway plc by way of a scheme of arrangement. Under the terms of the undertakings given by Morrison on 8 December 2003 to the Secretary of State for Trade and Industry (the Undertakings), Morrison must divest 52 grocery stores (the Divestment Stores) to address local competition concerns identified by the Competition Commission (CC) in its report on the proposed acquisition of Safeway (the CC Report) (see [note 1]). Asda proposes to acquire four one-stop stores (the acquired stores), three of which are Divestment Stores, from Morrison. The unextended statutory deadline is 11 October 2004.
As a result of this transaction Asda and the acquired stores will cease to be distinct. The UK turnover attributable to the acquired stores exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. A relevant merger situation will therefore be created.
The CC concluded in the CC Report that one-stop shopping in grocery stores of 1,400 square metres and above (large stores) constituted a relevant frame of reference for the purposes of their inquiries. Typically in a local area, only large stores cater for one-stop shopping, and thus are not generally constrained effectively by smaller grocery stores for customers of this type of shopping, as such stores do not stock a sufficiently wide product range to fulfil customers' needs for a weekly grocery shop. Each acquired store clearly falls within the definition of one-stop grocery store as used in the CC Report. The product frame of reference for this case is therefore one-stop grocery shopping as defined by the CC.
The CC concluded that the geographic frame of reference was essentially local because of the limited distance that most customers were willing to travel for their regular shopping trip. However, the CC did recognise that there were national aspects to competition which should also be considered, as many important decisions (such as pricing and advertising) (see [note 2]) were taken at national level and implemented locally. We therefore analysed competition both nationally and locally (using the CC's isochrone methodology for the latter).
Asda's share of national one-stop shopping would increase from 21.6 per cent to [20-25 per cent] as a result of the merger (see [note 3]). No national concerns arise as a result of this merger on the basis of so small an increment.
The isochrone analysis provided by the parties points to the conclusion that this merger does not raise local competition concerns, as analysed in the CC Report, as in no local area will the number of competing fascias be reduced to three or less. No local concerns therefore arise as a result of this merger.
Barriers to entry and expansion
The CC Report sets out that barriers to entry and expansion are high for large stores. We have not received any evidence which would warrant departing from this conclusion.
As customers are usually individuals, countervailing buyer power is not an issue in relation to this acquisition.
Asda submits that its share of national grocery purchases from suppliers was 13 per cent for the 52 weeks ended 20 June 2004. The OFT believes that the increment as a result of the merger is [0-5 per cent]. Suppliers raised no concerns about the transaction. No vertical issues are, therefore, raised by this transaction.
THIRD PARTY VIEWS
Third parties generally did not believe that the transaction would lead to any lessening of competition.
This merger raised no horizontal competition concerns at either national or local level. Furthermore, no vertical competition concerns are raised. 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 CC under section 33(1) of the Act.
- Cm 5950
- Para. 2.51.
- Based on TNS national share of grocery supply from one-stop grocery stores for 52 weeks ended 20 June 2004.