Anticipated acquisition by Tesco Stores Limited of five former Kwik Save stores (Handforth, Coventry, Liverpool, Barrow-in-Furness and Nelson)

Affected market: Grocery retail

No. ME/3387/07

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 11 December 2007. Full text of decision published 20 December 2007.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Tesco Stores Limited (Tesco) is a subsidiary of Tesco plc, a large grocery retailer with a portfolio of stores across the UK. In addition to its UK grocery retailing business (both food and non-food), Tesco has various other operations in the UK, which include petrol retailing, internet shopping and the provision of financial services. Tesco's turnover was approximately £46.6 billion in the year ending 24 February 2007, of which approximately £35.6 billion was generated in the UK.

Kwik Save Stores Limited (Kwik Save) entered administration on 6 July 2007. FreshXpress Retail Limited and FreshXpress Property Limited (together FreshXpress) are carrying on Kwik Save's business under licence in continuation of and in succession to Kwik Save and with the right to direct the sale of the Kwik Save stores.

TRANSACTION

Tesco proposes to acquire five former Kwik Save stores in Handforth, Coventry, Liverpool, Barrow-in-Furness and Nelson (the Acquisition Stores) from FreshXpress. The turnover associated with the Acquisition Stores in the financial year 2006/2007 is estimated to be around £[ ] million.

The Office of Fair Trading's (OFT) administrative deadline for deciding whether to refer the merger to the Competition Commission (CC) is 11 December 2007.

JURISDICTION

As a result of this transaction Tesco and the Acquisition Stores will cease to be distinct. The parties overlap in the supply of grocery retailing, and post-merger will account for over 25 per cent of all grocery retailing in the UK. As a consequence the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. 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.

THIRD PARTY VIEWS

Some third parties expressed general concerns about the increasing levels of concentration in the supermarket sector but these were not specific to this particular acquisition. Some competitors raised concerns that the merger could generate competition issues.

ASSESSMENT

Tesco overlaps with the Acquisition Stores in grocery retailing. Due to the very small market share increment, the merger does not cause any concerns at a national level. The OFT believes that, absent the merger, the stores in Handforth, Liverpool, Barrow-in-Furness and Nelson would have been closed down with no serious prospect of re-organisation and that there was no less anti-competitive alternative to the merger. Accordingly, the transaction meets the failing firm defence.

In relation to the store in Coventry, this fails one of the filters applied in Somerfield/Morrisons marginally, and only [  ] per cent of people in an extended isochrone facing a reduction in choice of fascia of four to three or less. However, based on the particular factors in this case the OFT believes that the level of competition between the Coventry Store and the local Tesco stores would be expected to be much lower than is suggested by this figure. In particular, the relative weakness of Kwik Save as an independent competitor, the (small) size of the Coventry Store, and the fact that there are a number of one-stop shops just outside the five-minute isochrone around the Coventry store and several convenience stores within it, all indicate that the [  ] per cent figure is an overstatement of the actual impact of the merger on competition.

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.

 
DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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