Affected market: Restaurants
The OFT’s decision on reference under section 33 given on 19 January
City Centre Restaurants plc (CCR) (see [note 1]) operates a
number of restaurant brands throughout the UK, including, Frankie &
Benny's, Chiquito, Garfunkels, Caffe Uno and Est Est Est.
Ask Central plc (ASK) operates a number of restaurant chains across the
UK, predominately under the ASK and Zizzi brands. ASK's total UK
turnover for the year ending 29 December 2002 was £95.8 million.
CCR has proposed a conditional offer of a mixture of shares and cash to
acquire ASK for a total consideration of approximately £174m (see [note
2]). The OFT was notified of the transaction on 27 November 2003
and the 40 working day administrative deadline will expire on 30 January
As a result of this transaction CCR and ASK will cease to be distinct.
The UK turnover of ASK exceeds £70 million, so the turnover test in
section 23(1)(b) of the Enterprise Act 2002 is satisfied. A relevant
merger situation is likely to be created.
The parties overlap in the ownership and management of restaurants.
The parties considered it difficult to define the boundaries of the
relevant market in which they operate. They stated that their clearest
competitors are restaurants that offer a similar type of food or those
that offer a different type of cuisine but in a similar price range.
Additionally, gastro-pubs were considered close competitors, and quick
service/fast food restaurants also provide competition, particularly for
lunchtime trade in city centre locations.
One third party commented that customers view most informal restaurants
as substitutable, regardless of the type of food served - thus Indian,
Chinese, burger, chicken and Italian restaurants and gastro pubs are
considered to be possible alternatives for each other. Local,
independent restaurants were also considered to be important competitive
constraints, particularly in small towns.
It is clear that some types of restaurant are closer substitutes on the
demand side than others. However, it is considered that on the demand
side a hypothetical monopolist of one type of restaurant (eg pizza
restaurants) could not impose an across the board price increase without
customers switching to an alternative restaurant type. On the supply
side, restaurants may be constrained in their switching by having a
reputation for a certain type of food or skills in preparing certain
types of food.
There may be a case for segmenting the restaurant market in a number of
alternative ways including by the price range of the meal, by level of
formality, by restaurant experience or by the general location of the
brand (eg high street or leisure park (see [note 3]). No
conclusion has been reached on whether delineating the market in any of
these ways is appropriate since no competition issues arise in any
Both parties operate national restaurant chains, and set prices and
format centrally, therefore, on the supply side, certain parameters of
competition are set nationally.
The parties estimate the average customer drive time to their
restaurants is 20 minutes or around 5 to 10 miles. One third party was
unable to comment on the catchment area of its restaurants, but noted
that customers are generally attracted from beyond the immediate town.
Another third party stated that three-quarters of its customers live or
work within 10 miles of the restaurant that they visit, although this is
highly dependent on location – distance travelled for urban or business
district restaurants is generally around 10 minutes walking with
customers travelling over 60 miles to some rural locations.
Therefore, the appropriate geographic frame of reference appears to be
wider than the immediate high street and quite possibly wider than the
immediate town. No conclusion has been reached on the relevant
geographic market since no competition issues arise even at the most
narrow possible level.
The parties were unable to provide share of supply figures on a national
basis, however, they did not believe that any chain of restaurants had a
market share of more than 5 per cent (by number of outlets). Given the
high levels of fragmentation in the restaurant sector, shares of supply
at the national level are believed to be low and increments minimal. No
evidence has been received to the contrary.
At the local level, the parties provided an assessment of competition
that they face in top level postcode areas where the merging parties
overlap. In all areas the parties face competition from a large number
of other restaurants.
Barriers to entry and expansion
The parties state that there may be some licensing and planning
application hurdles to overcome when opening a new restaurant and the
impact of these varies from location to location, but these are by no
means prohibitive as evidenced by the large number of new entrants and
restaurant openings. The parties maintain that the market is
characterised by frequent entry and exit and expansion and retraction of
chains. Sunk costs are low.
CCR's 2002 annual report states that its strategy is to direct
investment into the leisure parks and concessions segments which have
'distinct barriers to entry'. Entry barriers may therefore be
considered higher in these segments than on the high street. However,
the parties do not overlap in the supply of restaurants to leisure parks
Individually, customers are unlikely to have buyer power.
There are no vertical issues.
THIRD PARTY VIEWS
Of the competitors we contacted, only two responded. Neither raised
concerns and commented on the large and fragmented nature of the
informal restaurant market.
The restaurant industry is highly fragmented at the national level, and
in any local areas where the parties overlap they face competition from
a large number of other restaurants. In addition, barriers to entry
appear to be low as evidenced by frequent entry and exit in the
Therefore, the OFT does not believe that it is or may be the case that
the creation of the relevant merger situation may be expected to result
in a substantial lessening of competition within a market or markets in
the United Kingdom for goods or services. Nor does it believe that
there is a credible alternative view that the merger might substantially
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- On 14 January 2004 CCR changed its name to The Restaurant Company Plc.
- Based on the closing share price of CCR shares on 8 January 2004 of 76.25 pence.
- Some of CCR’s restaurant brands, namely Frankie & Benny’s and Chiquitos, are generally found in leisure park locations (mainly at cinemas) rather than on the high street. Visiting restaurants in these locations is generally, although not exclusively, complementary to the leisure park experience. The parties do not overlap in the supply of restaurants at leisure parks.