Affected market: Pubs
The OFT's decision on reference under section 22(1) given on 11
October 2005. Full text of decision published 20 October 2005.
Yates' Wine Lodges Limited (Yates) is owned by the Laurel Pub
Company Limited (Laurel), which before the transaction owned and
operated 314 city centre pubs and bars in the UK, as well as eight
restaurants. Laurel is majority-owned by the Tchenguiz Family Trust
(TFT). The TFT also owns the Globe Pub Company Limited (Globe). Globe
currently owns 508 pubs, which are managed under an agreement by
Scottish and Newcastle Pub Enterprises.
The SFI Group Limited (SFI) owned 150 pubs prior to the transaction
and it was put into administration immediately prior to the sale. The
turnover generated in the UK by the assets acquired by Yates in 2004 was
The transaction comprises the acquisition by Yates of 101 pubs from SFI
branded as 'Slug & Lettuce', 'Litten Tree', 'Bar Med',
'Fiesta Havana' and 'Label' (the latter being a chain of pubs and
bars) and certain of SFI's subsidiaries. SFI and its administrators
have retained 49 pubs and bars from the original estate.
The acquisition was completed on 23 June 2005, and a satisfactory
submission was received on 11 August 2005 following an enquiry letter
sent by the Office of Fair Trading. Due to failure by the parties to
provide information under the timeframe provided, the statutory deadline
was extended to 27 October 2005 and the administrative deadline to 12
The acquisition will result in two enterprises ceasing to be distinct
within the meaning of section 26(1) of the Enterprise Act 2002. The
turnover test is met since the turnover generated in 2004 by the
acquired assets was greater than £70 million. The OFT therefore believes
that it is or may be the case that a relevant merger situation has been
The parties overlap in the ownership and operation of pubs and bars. In
previous cases the OFT has considered the appropriate frame of reference
to be the ownership and/or operation of pubs, where 'pubs' are defined
as being 'premises operated under a full publican on-licence' (see
[note 1]). This definition encompasses bars and inns, but
excludes restaurants and registered restaurants which operate under
In previous cases the OFT has pointed out that the distinction between
pubs and other on-licensed outlets has blurred over recent years,
causing pubs to potentially compete with other on-licensed premises
(even though there are some limitations in demand and supply side
substitution); however, it has been accepted that sales from
off-licensed outlets do not constrain pubs. It has also been noted that
it could be appropriate to further segment pubs according to location,
customer profile, range of products sold and 'pub experience'. Laurel
submitted that although it believes that all types of pubs and bars
compete, the degree of competition between them may vary according to
the type of customers they target. In addition, Laurel believes that
restaurants and other licensed premises compete with each other to
varying extents, and it submitted that its restaurants set prices with
regard to nearby on-licensed premises (to the extent that they compete).
In view of the changes in the market and in the licensing laws (see
[note 2]), the OFT has considered alternative product market
definitions. It has consulted the parties and third parties on the
extent of competition from different types of premises within the pub
segment, competition from other types of establishments, competition
with the off-trade and other aspects of the nature of competition in the
pub market. However, the OFT currently has insufficient evidence to
justify taking a different view from that in previous cases, i.e., that
pubs is the appropriate frame of reference. Nonetheless, it is worth
noting that the OFT believes that the merger does not raise competition
concerns on any of the alternative approaches.
Where national chains exist, in previous cases it was acknowledged that
although on the supply side certain parameters of competition are
increasingly determined at the national level, some parameters of
competition are still determined locally to an extent. On the demand
side, many pubs exhibit strong local characteristics.
In previous cases involving pubs it was pointed out that the use of
Petty Sessional Divisions (PSDs) as a proxy for analysing the
alternatives for local consumers and the extent of local competition
among pubs has some inherent weaknesses, and that as a consequence of
the new licensing regime the PSD will no longer be the relevant
licensing area. In this and in previous investigations, the parties to
the merger and third parties have been questioned on the most
appropriate method for examining local competition following the removal
of the PSDs. In previous cases a number of respondents have indicated
that the most appropriate alternative would be to use local authority
areas (LAAs) as a proxy. Although it was acknowledged that this would
have similar flaws as the PSD methodology, information on the number of
pubs would at least be relatively reliable.
Laurel's response to our queries indicate that there is a degree of
local competition in this sector as Globe's beer prices to its tenants
vary by geographic location and Laurel changes its retail prices
according to pub location. Although it does not have any studies
regarding the distance that people are willing to travel to visit a pub
or bar, it suggested that in its experience pubs have a catchment area
of, typically, 5-6 miles.
The OFT's analysis focused on assessing the combined share of supply
according to the number of pubs at a national level and within a PSD, as
in previous cases, as well as within a LAA. Furthermore, the overlaps
with Laurel's restaurants and the levels of concentration in high
street locations were also taken into account. In view of the fact that
the case under consideration does not raise any concerns under any of
these methodologies, it is not necessary to conclude on the most
appropriate geographic frame of reference.
The parties overlap in 65 PSDs. However, based on the parties'
estimation of their share of supply, there is not a single PSD or LAA
area in which the combined share of supply is greater than 25 per cent
of the total number of pubs. Indeed, analysis commissioned by the
parties from AC Nielson show that the highest combined share of supply
within a PSD is less than 10 per cent. In addition, on a national level
the parties have less than 2 per cent of the pub market.
Laurel's restaurants only overlap with the pubs and bars acquired from
SFI in the Nottingham and Reading PSDs, and the combined share of supply
considering all licences within any given PSD or LAA is even lower than
the combined share of pubs.
Finally, in response to a third party comment that the merged group was
saturating the high street with its various brands of pubs and bars,
Laurel presented data prepared by AC Nielsen indicating that it does not
own more than 15 per cent of pubs in any town centre across the country
(and in most areas its share of supply is well below that).
On the basis of the low combined national and local shares of supply, at
both a PSD and LAA level, as well as in town centre locations, the OFT
believes that no horizontal concerns will arise as a consequence of this
BARRIERS TO ENTRY AND EXPANSION
In view of the lack of horizontal concerns, it is not necessary to
conclude on barriers to entry and expansion.
In view of the lack of horizontal concerns, it is not necessary to
conclude on the existence of countervailing buyer power. In addition,
the low shares of supply that the parties have following the transaction
indicate that this merger does not raise any concerns regarding enhanced
buyer power in relation to brewers.
There are no vertical issues arising in this transaction in view of the
fact that the parties are not active in the distribution or supply of
THIRD PARTY VIEWS
Third parties were generally unconcerned about this transaction; only
one third party raised concerns regarding the potential saturation of
the high street by the merged party, which has been addressed above.
Yates and SFI overlap in the operation and ownership of pubs. This
merger does not give rise to competition concerns due to the low
combined share of supply at national, PSD and LAA levels coupled with
the virtual absence of third party complaints.
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- Greene King Plc/Laurel Pub Holdings Ltd 2004.
- The current licensing regime involves different types of licences
with different degrees of restriction placed upon them (e.g. full
on-licences, restricted on-licences and club on-licences). This is being
replaced with a system in which there is only one type of licence for
all types of premises. Furthermore, responsibility for premises
licensing will be transferred from local magistrates to local
authorities. The new system will come into into full effect in November