ACCC overrules Metcash acquisition

Published on Fri, 19/11/2010, 10:29:27

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Metcash said it will be closely reviewing its options after the Australian Competition and Consumer Commission (ACCC) rejected its proposed acquisition of the Franklins supermarket business.

In a statement issue, Andrew Reitzer, CEO of Australia's largest wholesaling and distribution company, has expressed his disappointment about the decision.

“Metcash is committed to championing independent grocery retailers. This transaction would have resulted in the most competitive outcome for consumers. The NSW market share of IGA retailers would have increased from 11 per cent to 18 per cent leading to greater supply chain efficiencies and more competitive selling prices,” he said.

Metcash is concerned that the ACCC’s decision will lead to the national chains acquiring a significant number of the Franklins stores. Despite the ACCC’s proposed scrutiny of each acquisition, past experience has shown that the national chains will be able to acquire a number of the Franklins stores. This will simply entrench their dominant position by lifting their market share in NSW to the highest level of any state in Australia.”

Since Metcash made its announcement about acquiring 85 Franklins supermarket chain in July, the ACCC has been reviewing the decision with concerns that it may lessen the competition of supplying groceries to independent retailers, including those under the IGA and Supa IGA banners.
As a result, the ACCC concluded that Franklins' ability to offer the full range of services means Metcash faces competition in wholesaling services, terms, rebates and prices, to the advantage of independent retailers.

"Our thorough review found that the proposed acquisition would have reduced the number of players competing to provide these services from two to one, effectively giving Metcash a monopoly on grocery wholesaling to independent supermarkets in NSW. Barriers to entry in this market are already high, making timely new entry of a competitor to Metcash unlikely if this transaction proceeds," ACCC chairman Graeme Samuel said.

"Because of high fixed costs, potential entrants need a large number of supermarkets as customers to give them the scale to operate a wholesale network profitably. The proposed acquisition would have resulted in the removal of a large pool of 88 supermarkets, including many medium and large supermarkets, which would otherwise be contestable, either partly or wholly, by a new wholesale competitor."

The ACCC also assessed whether the proposed acquisition would have additional anticompetitive effect in particular local retail markets. These additional concerns arise where Metcash-supplied and Franklins-supplied retailers compete closely and where there is not sufficient competition from other nearby supermarkets to prevent a substantial lessening of competition as a result of the proposed acquisition.



 


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