Affected market: Wholesale supply of wine
The OFT's decision on reference under section 33 given on 23 March
2005. Full text of decision published 6 April 2005
Please note square brackets indicate information replaced by a
range or excised at the request of the parties for reasons of commercial
Foster's Group Limited (Foster's) is an Australian-based
international beverage company whose shares are quoted on the Australian
Stock Exchange. Its product portfolio covers beer, wine, spirits, cider
and non-alcoholic beverages. Foster's wine subsidiary, Beringer Blass
Wine Estates Limited, markets brands such as Wolf Blass and Yellow
Southcorp Limited (Southcorp) is an Australian-based wine producer
whose shares are listed on the Australian Stock Exchange. Its four main
brands are Penfolds, Rosemount Estate, Lindemans and Wynns Coonawarra
Estate. In the last financial year Southcorp's UK turnover was
approximately £81 million.
Foster's proposes to acquire the shares of Southcorp pursuant to a
successful offer to Southcorp's shareholders.
The parties notified the transaction by merger notice on 9 February
2005; the statutory deadline, as extended, expires on 23 March 2005.
As a result of this transaction Foster's and Southcorp will cease to be
distinct. The UK turnover of Southcorp exceeds £70 million, so the
turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act)
is satisfied. 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 situation.
Both parties produce wine in Australia and elsewhere. In the UK the
activities of the parties overlap in the importation and sale of wine to
wholesalers and retailers.
Wine is a medium alcohol drink (containing less than 15 per cent
alcohol/volume) and is usually labelled by country of production, grape
variety, maturity or age. It is usually sold in 0.75 litre bottles and,
less often, in wine boxes.
On the demand-side, other beverages are unlikely to be a realistic
substitute for wine. Similarly, there is no realistic supply side
substitution for wine production owing, inter alia, to the fact that
wine production has a lead time of several years.
Wine can be categorised by a number of different criteria, such as: (i)
colour (red, white, rosé); (ii) grape or blend of grapes; (iii) year of
vintage; (iv) country of origin; (v) brand or estate; and (vi) price.
There is a matrix of issues which determines which wine a consumer will
buy and the evidence in this case has not suggested any compelling
reasons to adopt a frame of reference limited to Australian wine or to
the brands produced by the parties.
The frame of reference in this case is the wholesale supply of wine to
both the 'on trade' (licensed premises such as pubs) and to the 'off
trade' (sales to off licences and supermarkets).
The geographic frame of reference is the UK.
The presence of the parties in the UK is limited to some marketing and
warehousing facilities for wine. The estimated shares of supply of the
parties and their competitors in the UK are set out in
55 kb). Southcorp supplies around [0-5] per cent of wine in the UK,
and Fosters supplies [0-5] per cent. No wine wholesaler supplies more
than 10 per cent of wine in the UK and the top five wholesalers account
for less than 26 per cent of UK sales. The parties' combined share of
supply does not give rise to competition concerns.
Southcorp's 'Rosemount Estate' brand features in the top ten of wine
brands sold in the UK. The share of supply attributable to this brand
is estimated to be around [0-5] per cent. The product portfolio of
the parties in the UK is not such as to give rise to competition
Customers of the parties are mostly pub chains, supermarkets and off
licence chains. These customers have a considerable degree of
countervailing buyer power.
This case does not raise any vertical competition issues.
THIRD PARTY VIEWS
Third parties contacted by the OFT in this inquiry were generally
unconcerned by this merger.
The parties overlap in wholesale supply of wine in the UK. This sector
is highly fragmented and the parties' combined share of supply is very
low. In addition, the parties' customers have considerable buyer
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.