John Lewis Partnership plc / Wm Morrison Supermarkets plc
OFT closed case: Anticipated acquisition by John Lewis Partnership plc of 19 one-stop stores from Wm Morrison Supermarkets plc.
Affected market: Grocery retailing
The OFT's decision on reference under section 33 given on 28 May 2004
Waitrose Limited (Waitrose) is a wholly-owned subsidiary of John Lewis Partnership plc and operates a range of grocery stores. Wm Morrison Supermarkets plc (Morrison) is a large grocery retailer, which also operates a wide variety of grocery stores.
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 a number of grocery 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]). Waitrose proposes to acquire 19 stores from Morrison (the acquired stores), 14 of which must be divested by Morrison under the terms of the Undertakings.
Before announcing its decision on this transaction under the Enterprise Act 2002 (the Act), the OFT had to be satisfied that the terms of the Undertakings had been met. The OFT was able to conclude that the terms had been met on 28 May 2004.
The turnover attributable to the acquired stores for the respective last financial years is [greater than £70m] [[see note 4]] ([see note 2]). The administrative deadline was 26 May 2004.
As a result of this transaction Waitrose 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 Act is satisfied. A relevant merger situation will 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 3]) 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).
Waitrose's share of national one-stop shopping would increase from 2.8 per cent to [2.8-3.8] per cent ([see note 4]) as a result of the merger. No national concerns therefore arise as a result of this merger.
The isochrone analysis provided by 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 third party concerns were received in relation to this acquisition. 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.
Waitrose's share of national grocery purchases from suppliers would increase from [less than 5] per cent ([see note 4]) to [less than 5] per cent ([see note 4]) as a result of the merger. No vertical issues are, therefore, raised by this transaction.
THIRD PARTY VIEWS
Third parties broadly welcomed the merger.
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 Kingdom.
This merger will therefore not be referred to the CC under section 33(1) of the Act.
For the former Safeway stores, the year ended 31 March 2003; for the former Morrison store, the year ended 31 January 2004.
Figures replaced by a range at the request of the parties