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Merger clearance decisions

Woolworths Ltd - proposed acquisition of Supermarket in Hawker ACT

NOT OPPOSED
PCA issues on 17 October 2013

 

Summary

Woolworths Limited proposes to acquire the Supa IGA supermarket and liquor licence in Hawker, ACT.

ACCC press release (6 December 2012):

'The ACCC’s preliminary view is that the proposed acquisition may result in a substantial lessening of competition in the local supermarket market.

The ACCC considers that the proposed acquisition would remove the unique offering of the Hawker Supa IGA from the local market. In particular, the Hawker Supa IGA is the only full-line independent supermarket in the local market, and is the only Supa IGA in north Canberra.

“Market inquiries have indicated that the Hawker Supa IGA differentiates its offerings from its competitors in terms of price, product range and service. This differentiation represents a competitive response to the offer of rival supermarkets, providing additional choice to consumers,” ACCC Chairman Rod Sims said.

The proposed acquisition would replace this differentiated offering with a standardised Woolworths offer, which may lead to a significant reduction in choice for consumers.

The ACCC also considers that this competition is unlikely to be re-introduced into the local market because of high barriers to entry in the local market, including regulatory limits on development and expansion of supermarket sites.

...'

 

Decision

The merger was not opposed by the ACCC (see press release 4 July 2013)

 

Public Competition Assessment

A Public Competition Assessment was released by the ACCC on 17 October 2013.

Customer surveys

The PCA notes that, following the release of a Statement of Issues, the ACCC took the unusual step of commissioning Roy Morgan to conduct customer surveys to assess (para's 29-30)

  • whether consumers believed other retailers were substitutes for Hawker Supa IGA
  • the extent to which customers preferred shopping at Hawker Supa IGA (and why)
  • the extent to which customers used Hawker Supa IGA for main shopping trips and top-up trips; and
  • whether or not the proposed acquisition would have as 'meaningful detrimental impact on competition in the local market through a loss of consumer choice'.

Future with and without

The ACCC considered that Hawker Supa IGA was a profitable business and likely to continue operating independently if the acquisition did not proceed; the appropriate 'without' position was, therefore, continuation of the status quo (para 32).

Competition analysis - local market

Market definition

The ACCC defined the relevant local market as 'the retail supply of grocery and household products by supermarket to consumers ... in the local area surrounding the Hawker Supa IGA [which was broadly] within a radius of 3km from the target'. (para 34). In particular:

  • Product market - retail supermarket market (para 41)
  • Geographic market - local area surrounding Hawker Supa IGA (para 42)

At the product level, retail outlets that were close substitutes for Hawker Supa IGA included (paras 35, 37, 38):

  • full-line supermarkets
  • limited discounters (like ALLDI)
  • smaller format supermarkets

Limited discounters and smaller format supermarkets, while in the same market, were less close substitutes. The survey suggested that if Hawker was unavailable the majority of customers would switch to Coles.

Fresh food markets and specialist food retailers (butchers, bakers etc), while competing to some extent, were not sufficiently close substitutes to be considered in the same market (para 36)

  • fresh food markets
  • specialist food retailer

Closeness of competition

The ACCC then discussed closeness of competitive rivalry between market participants (from para 43), noting that, based on survey evidence, Woolworths was not a particularly close rival with Hawker Supa IGA, relative to other competitors (particularly Coles), primarily due to distance from Hawker and/or access to the complex (multi-level/carpark access). The ACCC noted that, given these factors, had Coles sought to acquire Hawker it would have raised 'different and potentially more significant competition concerns'.

Competitive behaviour of the Hawker Supa IGA

The ACCC noted market inquiries 'indicated that Hawker Supa IGA competes to attract customers from its rivals by differentiating its offer' and questions whether the loss of this competitive response would substantially lessen competition (para 51).

Survey evidence suggested that the vast majority (more than 80%) identified location as a main reason for shopping at Hawker Supa IGA and that Hawker did not attract many customers living beyond its immediate surrounds. Parking was also a highly relevant factor. Neither of these factors change if the acquisition went ahead.

In relation to price, the ACCC concluded the significance of Hawker's competitive behaviour was more limited than initially thought. Although Hawker's promotional cycle was attractive to customers, 'consumers would continue to have the opportunity to shop at a variety of supermarkets within the local market in order to benefit from various promotional offers' (para 60) and ordinary shelf prices 'did not rate highly ... as a reason for visiting' the Hawker store. (para 61)

In relation to quality, it was acknowledged the 'overall presentation of the Hawker Supa IGA [was] of a high standard' (para 62), but its range was common to most supermarkets, with only a small number of products unavailable elsewhere (para 63). Nevertheless, those products had attracted some customers to Hawker. Survey evidence also suggested that the service offered by Hawker was higher than that of its competitors.

However, although some aspects of service and quality would be lost from the local market as a result of the acquisition, these points of differentiation did 'not appear sufficient to draw many customers from beyond the closest surrounding suburbs'.

Barriers to entry

The ACCC found that the 'local market is characterised by high barriers to entry for establishing a new supermarket, or expanding an existing one' (para 66).

Conclusion on local retail supermarket market

The ACCC concluded the proposed acquisition would reduce competition a bit, but would not substantially lessen competition sufficient to contravene s 50 (para 67). A significant factor was the finding that the Hawker Supa IGA and existing Woolworths supermarkets in the local market were not close competitors (para 68).

Competition analysis - State-wide retail supermarket market

The ACCC also considered whether the acquisition would SLC in the broader retail supermarket market in NSW and ACT and held that this would be unlikely because the single acquisition would only marginally increase Woolworths' state wide market share (para 70).

Competition analysis - Wholesale procurement and supply markets

The ACCC considered whether the proposed acquisition would SLC in 'the wholesale procurement and supply of grocery products sold in supermarkets in NSW and the ACT' and concluded that the single proposed acquisition 'would be unlikely to have a substantial effect on the viability of wholesale operations, either for existing competitors or potential new entrants' and 'lost volume from this single supermarket would be unlikely to have a significant effect on competition in the wholesale procurement market' (para 71).

Conclusion

The proposed acquisition would not be likely to have the effect of substantially lessening competition in any market. (para 72).

 

Commentary

John Durie, 'ACCC gives Woolies OK to buy Supa IGA in Hawker' (The Australian, 4 July 2013)