Foodstuffs' proposed merger of its North and South Island businesses has faced concern from the Commerce Commission in the latest Statement of Issues release. The report focussed on the possible competition issues with the acquisition following its initial investigation, reporting that current levels of competition are unlikely to constrain a merged entity.
The Commission has sought submissions from Foodstuffs North Island, Foodstuffs South Island and other interested parties on the issues raised in the Statement of Issues. The Commission is currently scheduled to make a decision on the application by 31 May 2024. However, this date may be extended.
To assess whether the Proposed Merger is likely to substantially lessen competition will require the Commerce Commission to compare the likely state of competition if the Proposed Merger proceeds, with the likely state of competition if it does not. This has required the commission to make a pragmatic and commercial assessment of what is likely to occur with and without the Proposed Merger, based on information the commission has obtained through an investigation.
The Statement of Issues suggested that the Commerce Commission was concerned that replacing two entities with one would allow Foodstuffs to pressure suppliers for better terms, including lower prices. As a result, lower prices could not be guaranteed to be passed down to consumers.
Other existing grocery retail competitors, including Woolworths, may not be sufficient to materially constrain the merged entity and prevent a substantial lessening of competition in the acquisition of grocery products from suppliers. Beyond Woolworths, other existing grocery retail competitors are of smaller scale and/or focus on different offerings within different geographic areas. Barriers to entry and expansion have the potential to inhibit rival grocery retailers from purchasing more products from suppliers.
Ultimately, if the Commerce Commission considers that a substantial lessening of competition is likely when the Proposed Merger is compared against any real chance counterfactual, the commission must decline to give clearance. Practically, the commission may choose to focus on a single counterfactual that is the most competitive. However, in complex cases involving multiple markets, it may be appropriate for the commission to consider different likely counterfactual scenarios or different aspects of the same counterfactual, for the assessment of the different markets or competitive effects of the Proposed Merger.
In addition, we are concerned that harm may also arise if suppliers have less ability and incentive to invest and innovate over time because the subsequent imbalance of bargaining power increases risk and reduces their profitability.
The Statement of Issues, along with other documents related to the Commission’s investigation on the parties’ application, can be found on the case register.
The Commerce Commission has invited submissions from the parties and other interested parties on the issues raised in the statement. Submissions are due by the close of business on 18 April 2024, with cross-submissions due by the close of business on 30 April 2024. Submissions can be sent by email to registrar@comcom.govt.nz with the reference “Foodstuffs merger” in the subject line.
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