Affected market: Grocery retailing
The OFT's decision on reference under section 33 given on 3 October
2005. Full text of decision published 7 October 2005.
J Sainsbury plc (Sainbury's) is a large national grocery retailer
operating both one-stop grocery stores and smaller grocery stores.
WM Morrison Supermarkets plc (Morrisons) is a large national grocery
retailer, operating primarily one-stop grocery stores.
Sainsbury 's proposes to acquire nine stores (the Acquired Stores) from
Morrisons. The parties notified the transaction on 19 August 2005. The
statutory deadline is 3 October 2005.
On 8 March 2004, Morrisons acquired Safeway plc. As part of this
transaction Morrisons gave undertakings to the Competition Commission
(CC) to divest 52 stores (the Divestment Stores) to address local
competition concerns. Whilst the nine stores being considered here are
former Safeway stores, they do not include any Divestment Stores
identified by the CC for divestment.
As a result of this transaction Sainsbury 's and the Acquired Stores
will cease to be distinct. The UK turnover attributable to the former
Safeway stores 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.
In its report on the proposed acquisition of Safeway (the Safeway
Report, see [note 1]), the CC concluded that one-stop shopping
in grocery stores of 1,400 square metres and above constituted the
relevant frame of reference for the purposes of their enquiries.
Typically in a local area only large stores cater for one-stop shopping
and are thus not generally constrained by smaller grocery stores for
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 of the Acquired Stores falls within the definition of a one-stop
grocery store as used in the Safeway Report. The product frame of
reference for this case is therefore one-stop grocery shopping as
defined by the CC.
The Safeway Report 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 as many
important decisions (such as pricing and advertising) were taken at a
national level and implemented locally and should therefore also be
considered. In light of this we analysed competition both nationally and
locally (using the CC 's isochrone methodology for the latter, see
As a result of the acquisition, Sainsbury 's share of supply in
national one-stop grocery retailing would increase from 19.4 per cent to
19.5 per cent (see [note 3]). Given this very small increment no
national concerns are considered to arise as a result of this merger.
In order to assist the OFT in its assessment of local issues the parties
provided isochrone analysis using the methodology used in the Safeway
Report. No local areas were identified as 'problem areas ' on this
The majority of the Acquired Stores do not give rise to an overlap with
any Sainsbury stores at the local level. Where an overlap does exist,
there are four or more fascia remaining post-merger. In its Safeway
Report the CC identified that competition concerns are most likely to
arise in more concentrated areas with three or fewer competing fascia in
an isochrone. The concentration levels in this acquisition are therefore
below the threshold at which the CC considered problems would arise.
The majority of competitors and suppliers indicated that they did not
have concerns relating to changes in local conditions. However one
respondent did raise concerns that the reduction in the number of
one-stop grocery stores in Bitterne might have a negative impact on
mid-range stores within a 5 minute drive time of the target store. Both
the Acquired Store and the Sainsbury 's store identified in Bitterne
are one-stop grocery stores and were therefore included in the one-stop
grocery store analysis outlined in the Safeway Report. This analysis
showed that the merger passed the isochrone test since it did not lead
to a reduction in the number of fascia. The CC did not indicate in its
report that it was necessary to go beyond the one-stop analysis to
consider the effects on a mid-range store. Based on the evidence
available at this time the OFT sees no reason to depart from this
methodology in the present case.
Barriers to entry and expansion
The Safeway Report identified high barriers to entry in one-stop grocery
retailing. Economies of scale in particular the ability of large
incumbent supermarkets to command favourable buying terms, as well as
planning restrictions have restricted entry such that there has been no
new entry in the last ten years. We have not received any evidence which
would warrant departing from this conclusion.
As customers are usually individual, there is no countervailing buyer
Sainsbury 's share of national grocery purchases from suppliers would
increase from 10.5 per cent to 10.6 per cent (see [note 4]).
Given this small increment the merger is not considered to materially
strengthen Sainsbury 's buyer power. Therefore no vertical concerns
arise as a result of the merger.
THIRD PARTY VIEWS
Of the competitors and suppliers contacted, the vast majority did not
have concerns. However some third parties did express general concerns
about the increasing levels of concentration in the supermarket sector.
This merger raises no horizontal competition concerns at either national
or local level. Furthermore no vertical competition issues 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 Competition Commission
under section 33(1) of the Act.
- Safeway plc and Asda Group Limited (owned by Wal-Mart Stores Inc); Wm
Morrison Supermarkets plc; J Sainsbury plc and Tesco plc: A report on
the mergers in contemplation, August 2003, Cm5950 paragraph 5.11.
- See Safeway Report, Chapter Five.
- Based on TNS total till roll data for the 52 weeks ending July 2005.
- Based on TNS data for the 52 weeks ending July 2005.