Affected market: Funeral undertaking services
The OFT’s decision on reference under section 33(1) given on 5 April
2006. Full text of decision published 20 April 2006.
Please note that square brackets indicate text or figures which have
been deleted or replaced with a range at the request of the parties for
reasons of commercial confidentiality.
Cooperative Group Limited (CWS) is a retailer of grocery products
but is also active in funeral undertaking. McIntosh Funeral Directors
(McIntosh) is a sole trader active in funeral undertaking located in
Kaimhill Road, Aberdeen, AB10 7LJ, Scotland.
CWS proposes to wholly acquire the McIntosh business. The transaction
was notified on 24 February 2006 and an administrative deadline of 25
April 2006 applies.
Pursuant to an investigation conducted by the Monopolies and Mergers
Commission (MMC) into the acquisition by CWS of the funeral undertaking
business of House of Fraser, CWS gave undertakings to the Secretary of
State on 27 November 1987 to notify the OFT of any further proposed
acquisitions of funeral undertaking businesses in Scotland. CWS has
complied with its obligations under the 1987 undertakings in respect of
As a result of this transaction CWS and McIntosh will cease to be
distinct. The parties overlap in the supply of funeral undertaking
services and achieve a share of supply of [greater than 25] per cent
in Scotland. As a result, the share of supply test in section 23 of the
Enterprise Act is met. The OFT therefore believes that it is or may be
the case that arrangements are in progress or in contemplation which, if
carried into effect, will result in the creation of a relevant merger
The parties overlap in the supply of funeral undertaking services. When
preparing its analysis, CWS assumed that the number of funerals
conducted was the same as the number of deaths. This is consistent with
the MMC report into the acquisition by CWS of the funeral undertaking
business of House of Fraser (the House of Fraser Report).
In the House of Fraser Report, the MMC considered that competition
occurred at a local level, where a normal radius of operation was
between five and ten miles (see [Note 1]). This was further
supported by the MMC report in the SCI/Plantsbrook (see [Note 2)
merger and more recently by the Competition Appeals Tribunal
(CAT) in the Burgess Funerals Competition Act 1998 case (see [note 3]).
On the basis of these past precedents the local aspects of
the merger can be examined as follows: i) using Aberdeen city council
boundaries; ii) using catchment areas around the two existing CWS
‘Funeral Care’ branches which represent 80 per cent of their business.
No evidence was received during the course of the OFT’s investigation
which would suggest a departure from the above approach.
CWS has two Funeral Care branches in Aberdeen. The Rose Street branch is
located centrally, two miles away from the McIntosh (or Target) branch
(approximately four minutes drivetime). The Old Meldrum Road branch is
nearly six miles away from the Target branch (approximately 11 minutes
drivetime) and is further away from the centre of Aberdeen than the
other funeral homes present.
CWS provided share of supply data in relation to Aberdeen City Council
boundaries which was consistent with the delineations used by the MMC
and the CAT in previous cases. On this basis, as a result of the
acquisition, the parties combined share of supply in funeral
undertakings in Aberdeen would be [15-25] per cent (increment [less
than 10] per cent).
There are several other funeral homes in Aberdeen, including
Dignity (five branches, see [Note 4]); Victoria Funeral Home
(one branch); Mark B Shaw (one branch); Brian Smith Funeral Services
(one branch); and Aberdeen Funeral Directors. Based on the share of
supply information submitted by the CWS, Dignity would appear to be by
far the largest provider in Aberdeen ([45-55] per cent), followed by
CWS and then Aberdeen Funeral Directors ([15-25] per cent).
CWS also provided share of supply data using catchment areas around the
two existing CWS branches which represent 80 per cent of CWS’ business
in this area: the Old Meldrum Road branch; and the Rose Street branch.
In the case of the Rose Street branch, which generates an area only
slightly displaced from the City Council boundary, the parties’
combined share of supply would amount to [15-25] per cent. If the
catchment area was centred on the Old Meldrum Road branch, [the Target
branch is absent from the catchment area].
CWS has not provided market shares using the catchment area around the
Target branch. It is possible that doing so might result in a higher
combined market share for CWS as McIntosh is located further out of the
city centre and thus further from the cluster of competing funeral
homes. However, on the basis that the catchment area around McIntosh
would be at least a four mile radius (consistent with previous MMC
inquiries), all six competitors would be included in the market share
analysis and the combined CWS share is likely to be similar to the one
calculated by CWS for the Rose Street branch.
In the House of Fraser Report, the MMC concluded that price competition
between providers of funeral services in Scotland was limited and
therefore, another aspect of competition – choice – becomes important.
CWS provided evidence that within the Aberdeen City Council boundary,
the fascia count would reduce from seven to six and, as a result, there
would remain sufficient choice of funeral undertakers in Aberdeen
following the acquisition.
Based on the evidence outlined above, it would appear that a number of
competitors will be present post-merger, including the number one
provider Dignity. As a result, it would appear that sufficient
competition and choice will remain to constrain the merged entity
following the merger, such that no competition concerns arise.
BARRIERS TO ENTRY AND EXPANSION
The House of Fraser Report concluded that barriers to entry may be low.
Funeral businesses can be operated from many premises and sunk costs
appear very low. However, the MMC did suggest that it may be difficult
for new funeral businesses to gain a significant share of supply, as
this would have to be at the expense of established firms. There is no
evidence to suggest the situation has changed significantly to date.
THIRD PARTY VIEWS
Third parties did not raise any concerns about this merger, noting that
the parties were not particularly large and a number of alternative
providers would remain post-merger.
The parties overlap in the supply of funeral undertaking services in
Aberdeen. Consistent with past precedents, the competition was examined
at the local level using: i) the Aberdeen City Council boundaries; and
ii) the catchment areas around the two existing CWS Funeral Care
branches which represents 80 per cent of their business in this area.
Post-merger the parties will account for approximately [15-25] per
cent (increment [less than 10] per cent) of the supply of funeral
undertaking services within the Aberdeen City Council boundaries. Within
the two CWS Funeral Care branches catchment areas the parties combined
share of supply is [15-25] per cent (Rose Street) and [15-25] per
cent (Old Meldrum Road) respectively. In terms of choice, following the
merger the number of funeral providers based on a fascia count will
reduce from seven to six. Overall, it would appear that a number of
funeral service providers will remain post-merger to constrain the
parties, including the number one player in the area, Dignity, which is
substantially bigger than the merged entity.
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.
- MMC, 1987, A report on the acquisition by the Co-operative Wholesale
Society Limited of the Scottish funerals business of House of Fraser
PLC, Cm229, paragraph 8.8.
- MMC, 1995, Service Corporation International (SCI) of Plantsbrook
Group PLC: A report on the merger situation, Cm 2880.
- Case No:1044/2/1/04, M.E. Burgess, J.J. Burgess and S.J. Burgess vs
Office of Fair Trading and W. Austin and Sons, the Harwood Park
Crematorium and the Consumer's Association, 2005.
- In Aberdeen Dignity operates under the trading names of Gordon and
Watson (four branches) and MacIntosh and Steven (one branch).