Metcash Trading Limited - acquisition of Market Garden Produce Pty Ltd

Acquirer(s)

  • Metcash Trading Limited

Target(s)

  • Market Garden Produce Pty Ltd

Summary

Metcash Trading Limited has acquired an interest in Market Garden Produce Pty Ltd.

Market definition

For the purposes of this review, the ACCC considered the acquisition in the context of:

i) the Queensland/northern New South Wales market for the wholesale supply of fresh produce to independent grocery retailers;

ii) the national market for the wholesale supply of dry and packaged groceries to supermarkets (the ACCC noted that the geographic market for dry and packaged grocery wholesaling may be narrower, but as stated below, the competition analysis in this case would be unchanged); and

iii) local markets for supermarket retailing in Queensland and northern New South Wales.

The ACCC noted that the competition analysis in this review would be unchanged by the precise market delineation.

Competition analysis

The ACCC formed the view that the acquisition was unlikely to substantially lessen competition in any of the relevant markets.

Fresh produce wholesaling:

There were two key issues considered by the ACCC in analysing the potential impact on competition from the acquisition in the relevant fresh produce wholesale market:

i) whether the acquisition had removed a significant competitive constraint on the merged firm such that the merged firm would not be constrained from attempting to unilaterally exercise market power; and

ii) whether the acquisition had provided the merged firm with an increased ability and incentive to anti-competitively foreclose actual and potential rivals in the relevant market, through a bundling strategy.

With respect to point i) above, the ACCC concluded that the merged firm would continue to be constrained from attempting to unilaterally exercise market power by:

-- the existence of alternative, viable, sources of supply of fresh produce to the independent grocery retail channel; and

-- the credible threat of new entry and expansion by rival fresh produce wholesale suppliers.

With respect to point ii) above, the ACCC noted that Metcash has previously 'bundled' its fresh produce sales with its dry and packaged grocery sales to independent grocery retailers (for example, offering discounts on dry groceries to retailers who purchase a certain amount of fresh produce from Metcash). Bundling is not inherently anti-competitive, but in certain circumstances it may be used to anti-competitively foreclose actual and potential rivals. However, in this instance the ACCC considered it was unlikely that the acquisition would have increased Metcash's ability and incentives to employ an anti-competitive bundling strategy in the relevant market. In reaching this view the ACCC had regard to:

-- the limited value that independent grocery retailers appeared to place on receiving joint supply of fresh produce and dry and packaged groceries (as opposed to obtaining fresh produce from one wholesaler and dry and packaged groceries from another wholesaler);

-- the existence of a number of rival fresh produce wholesale suppliers competing with the merged firm, which have the ability to supply a customer base including, but not limited to, the independent grocery retail channel; and

-- the apparent lack of substantial barriers to entry and expansion in the relevant market.

The ACCC concluded that the acquisition was unlikely to substantially lessen competition in the Queensland/northern New South Wales market for the wholesale supply of fresh produce to independent grocery retailers.

Wholesale supply of dry and packaged groceries:

In analysing the potential impact on competition from the acquisition in the relevant dry and packaged groceries wholesale market, the ACCC considered whether the acquisition had substantially increased barriers to entry for prospective new entrants in dry and packaged grocery wholesaling, by requiring new entrants to enter both fresh produce wholesaling and dry and packaged grocery wholesaling simultaneously.

The ACCC concluded that the acquisition was unlikely to have raised barriers to entry in dry and packaged grocery wholesaling due to the following factors:

-- independent grocery retail customers appear to place limited value on receiving joint supply of fresh produce and dry and packaged groceries, such that entry into dry and packaged grocery wholesaling would not be dependent on simultaneous entry into fresh produce whoelsaling; and

-- there are a number of rival fresh produce wholesale suppliers with which a new entrant in grocery wholesaling could form a partnership to jointly supply dry and packaged groceries and fresh produce in any event.

The ACCC concluded that the acquisition was unlikely to substantially lessen competition in the national market for the wholesale supply of dry and packaged groceries to supermarkets.

Supermarket retailing:

In anlysing the potential impact on competition from the acquisition in local supermarket retail markets, the ACCC considered whether the acquisition could allow the merged firm to further appropriate economic profits out of Metcash supplied independent grocery retailers, through a bundling strategy. Such an increase in the wholesale prices paid by independent grocery retailers may diminish their ability to compete in supermarket retailling.

The ACCC concluded that the acquisition was unlikely to have provided the merged firm with an ability and incentive to engage in the bundling strategy outlined in the proceeding paragraph, due to the following factors:

-- independent grocery retailers appear to place limited value on receiving joint supply of fresh produce and dry and packaged groceries; and

-- Metcash's ability to appropriate economic profits from its independent grocery retail customers was unlikely to have been significantly increased by the acquisition.

The ACCC concluded that the acquisition was unlikely to substantially lessen competition in local markets for supermarket retailing in Queensland and northern New South Wales.

Timeline

DateEvent
03/06/2008The acquisition was completed.
01/12/2008ACCC commenced review under the Merger Review Process Guidelines, following advice that the acquisition had been completed.
16/12/2008Closing date for submissions from interested parties.
18/03/2009ACCC announced it would not oppose the acquisition.