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
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
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
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.