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					   Grocery Monitor Overview

   Presentation to Food and Drink
          Industry Ireland
William Prasifka, Chairperson, The Competition Authority
                     23rd May 2008
                  Overview
The request by the Minister:
      “to review and monitor the structure and
  operation of the grocery trade for the foreseeable
  future to see how it responds to the new legislative
  environment”.


Initial set of three reports:
1. Report No. 1: Structure and Operation of the Market

2. Report No. 2: Price Trends

3. Report No. 3: The Retail Planning System (Later in
   2008)
                  Background
1. GO introduced a ban on selling below the “net invoice
   price”:
    Retailers were forbidden from passing on to consumers off-
      invoice discounts received from suppliers
    Not only sales below costs but also sales above costs were
      banned by GO

2. The Competition (Amendment) Act of March 2006:
    Abolished the Groceries Order 1987 (GO)
    Introduced new provisions for the Irish grocery trade sector
      (Part 2A)
     The Competition
 (Amendment) Act 2006 (1)
1. The following practices are now prohibited IF their object or
effect is to restrict competition:
      Fixed and minimum resale price maintenance
      Dissimilar conditions to similar transactions
      Make any payment or grant any allowance for the advertisement or
        display of grocery goods (“Hello Money”)
      Make a payment or grant an allowance to retailer for providing space
        for grocery goods within the first 60 days of the opening of a new
        retail outlet (incl. newly expanded and new ownership)

2. It concerns suppliers, intermediaries, distributors of grocery
goods to retailers or directly to the public, retailers

3. Dominance is not required
 The Competition (Amendment)
        Act 2006 (2)
1. Sanctions available for the prohibited conducts are
   the same for violations of sections 4 and 5 of the
   Competition Act 2002
     Fines on undertakings guilty of an offence (up to 10% of
       turnover)
     Criminal sanctions on individuals (directors, managers etc)

2. Complaints about retailers:
     Parallel pricing of milk and baby milk,
     Predatory pricing on alcohol
     Allegation of “hello money”
   Since the abolition of the
   GO the world has changed
February 2007:
        Denis Manning was convicted of aiding and abetting a cartel
        Denis Manning (the enforcer), took certain action to protect Ford motor dealer
         margins
        The High Court left no doubt of the seriousness of such an offence.

“This type of crime is a crime against a consumer and is not simply
against one or more individuals. To that extent it is different from
other types of crimes and while society has an interest in preventing,
detecting, and prosecuting all crimes, those which involve a breach of
the Competition Act are particularly pernicious…In my view, there are
good reasons as to why court should consider the imposition of a
custodial sentence in such cases”.

Mr. Justice McKechnie, DPP v. Denis Manning, Central Criminal Court,
unreported judgement, 9 February 2007.
             Cartel Immunity
               Programme
1. Immunity may be granted to
   undertakings/individuals who confess and cooperate
     Contact the designated Authority’s officer between 10am and
      4pm Monday to Friday, except public or bank holidays at



             Tel.: 087 763 1378
     Check CARTEL IMMUNITY PROGRAMME on the
      website of the Competition Authority (www.tca.ie)
      Methodology of Grocery
             Monitor
1. Gathered information from the 13 largest wholesalers and retailers

2. Supplemented this information with:
     Survey of 75 small retailers (230 were invited)
     Price information gathered by the National Consumer Agency
     Retail market information on consumers and retailers from AC Nielsen

3. Mapped the retail and wholesale landscapes using geo-demographic
   tool:
     Enables mapping
     Demographic analysis
     Competitive analysis
4. CSO Data:
     CPI and grocery price indices
     Product subcategories price indices
Grocery Monitor: Report No. 2:




Price Trends in the Irish Retail Grocery
                Sector:

A Description of the Evolution of Retail
Grocery Prices between 2001 and 2007
Prior to the removal of the GO
       (Dec 01- Apr 06)
110

                                    Non-GO Items



105




100




                                GO Items
95




90

                              CPI



85
 Dec-   Mar-   Jun-   Sep-   Dec-   Mar-   Jun-   Sep-    Dec-   Mar-   Jun-   Sep-   Dec-   Mar-   Jun-   Sep-   Dec-   Mar-
   01    02     02     02     02     03     03     03      03     04     04     04     04     05     05     05     05     06
                                                         Base Apr 06 =100
 After the removal of the GO
      (Apr 06 – Apr 08)
110
                        A year after the
                        abolition
109


108


107
                                  CPI
106
                                                                                     Non-GO Items

105


104


103


102


101


100
                                                                                   GO Items
 99


 98
  Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr-
   06   06   06   06   06   06   06   06   06   07   07   07   07   07   07   07   07   07   07   07   07   08   08   08   08
   Conclusion on Price Trends
1. From the abolition of the Order, a structural change
   occurs in the price trends for Groceries Order items
   and Non Groceries Order items: they are divergent

2. This reflect a period of price adjustment by
   retailers who were free to use price enticements to
   compete

3. In more recent times, the influence of world food
   markets has tended to push up the price of items
   that were previously covered by the Groceries
   Order
                                      Breads & Cereals
                                      (Dec 01 – Apr 08)
155




145

                                                                                                                FLOUR

135




125


                                                                                                                     BREAD
115

                                                                                                          CPI

105




95




85
      Dec-   Apr-   Aug-   Dec-   Apr-     Aug-   Dec-   Apr-   Aug-   Dec-   Apr-   Aug-   Dec-   Apr-   Aug-      Dec-   Apr-   Aug-   Dec-   Apr-
       01     02     02     02     03       03     03     04     04     04     05     05     05     06     06        06     07     07     07     08

                           Bread & Cereals                         Bread                                    Flour
                           Biscuits                                Cakes                                   Breakfast Cereals
                           Other Cereals                           Other Bread & Cereals                   CPI
Grocery Monitor: Report No. 1:




  A Description of the Structure and
  Operation of Grocery Retailing and
 Wholesaling in Ireland: 2001 to 2006
     Findings: Retail 1 (Size)

Size of the sector                 Independent
                                      retailer
1. Turnover of €14.6 billion in       (14%)
   2006
                                                 Vertically-
                                                 integrated
2. €11.6 billion is attributable                   retailer
   to grocery goods defined as     Affiliated      (46%)
   food and drink for human         retailer
                                    (40%)
   consumption and
   household necessaries
     Findings: Retail 2 (Shares)
      Vertically-integrated                Affiliated retailers
1.    Tesco Ireland (15-20%)        1.   SuperValu (Musgrave) (10-15%)

2.    Dunnes Stores (10-15%)        2.   SPAR (BWG Foods) (5-10%)

3.    Superquinn (5-10%)            3.   Centra (Musgrave) (5-10%)

4.    Lidl (0-5%)                   4.   Londis (ADM Londis) (0-5%)

5.    ALDI (0-5%)                   5.   Gala (Gala Retail Services) (0-5%)

6.    Marks & Spencer (0-5%)        6.   MACE (BWG Foods) (0-5%)



     Turnover shares relatively stable between 2001 and
                            2006
                       Exception: ALDI and Lidl
                    Main players losing some ground
   Findings: Retail 3 (Capacity)
1. Vertically-integrated retailers
     Number of outlets almost doubled since 2001
     Amount of floor space also nearly doubled

2. Affiliated retailer groupings have seen similar growth over
   the period

3. The number of independent retailers (non-affiliated)
   retailers has fallen – part of a long-term trend in retailing in
   the grocery sector as well as other sectors

4. Overall:
     Grocery retailing capacity (as measured by floor space) has grown
       substantially since 2001
     Tendency toward consolidation of floor space
Trend in Number of Grocery
          Outlets
                         9000
                         8000
No. of Grocery Outlets




                         7000
                         6000
                         5000
                         4000
                         3000
                         2000
                         1000
                            0
                                2001          2002          2003         2004         2005       2006

                                       Vertically-Integrated Retailers    Affiliated Retailers
                                       Independent Retailers              Overall
Trend in Estimated Aggregate Net Retail
     Sales Area for Grocery Goods

                 1,400,000

                 1,200,000

                 1,000,000
 Square Metres




                  800,000

                  600,000

                  400,000

                  200,000

                        0
                             2001       2002          2003        2004        2005        2006

                                Vertically-Integrated Retailers    Affiliated Retailers
                                Independent Retailers              Overall
  Findings: Retail 4 (Competition)
1. Pricing behaviour:
     All of the vertically-integrated retailers pursue national pricing policies
     Wholesalers recommend prices to affiliated retailers but cannot enforce
       recommendations
     The exception is Musgrave who, through the SuperValu group of affiliated
       retailers, pursue a national pricing policy.

2. Product offerings:
     Vertically-integrated retailers - much broader range (Lidl, ALDI and M&S more
       specialised) with significant growth in own-label and exclusive label products
     Affiliated retailers tend to have narrower product ranges – SuperValu retailers are
       the exception – similar to the vertically-integrated retailers

3. Geographic distribution:
     Vertically-integrated retailers in more urban areas (driven by population density)
     Vertically-integrated – Dunnes Stores and Tesco are truly national, Lidl and ALDI
       are growing
     Affiliated retailers – Musgrave and BWG Foods have an even spread across the
       State – other groups of affiliated retailers more regional
  Findings: Retail 5 (Competition)

1. Vertically-integrated retailers and SuperValu:
     Tend to serve the one-stop shopper
     There is a strong local dimension to competition
     SuperValu outlets tend to follow a different location distribution
      than the vertically-integrated retailers

2. Other affiliated retailers:
     Tend to serve convenience and top-up requirements
     Vertically-integrated retailers making moves into this market
Tesco Retail Outlets   Dunnes Retail Outlets
Musgrave Affiliated Retail Outlets   BWG Affiliated Retail Outlets
              Example: The Retail Grocery
                Landscape in Waterford
                           10 min Drive
                           Catchment Area for
                           Tesco (Dashed Blue
                           Border)



10 min Drive
Catchment Area
for Aldi (Dashed
Red Border)




     Other
     Stores                          10 min Drive Catchment
                                     Area for Lidl (Dashed
                                     Purple Border)
       Findings: Wholesale 1
    The major players            Size of the sector:
1. ADM Londis                    1. Turnover of €4.6 billion in
                                    2006
2. Barry Group

3. BWG Foods                     2. Growth of 53% on 2001

4. Mangan Wholesale              3. €3.5 billion is attributable to
                                    grocery goods
5. Musgrave
                                 4. Direct supply is the other
6. Gala (and Stonehouse Buying      channel to market - does not
   Group)                           include turnover from direct
                                    supply


     The wholesale level is concentrated:
    Musgrave & BWG Foods have almost 80%
     Findings: Wholesale 2
     Wholesaler groupings license retail brands to
                  affiliated retailers

1. ADM Londis                     4. Mangan Wholesale
     Londis and Londis TopShop         Xpress Stop, Vivo and
                                          Mace
2. Barry Group
                                  5. Musgrave Brands
     Costcutter and Quikpick
                                        SuperValu, Centra,
3. BWG Foods                              Daybreak and
     MACE,                               DayToday
      SPAR /EUROSPAR /SPAR
                                  6   Gala wholesalers
      Express, XL Stop & Shop
                                        Gala, Gala Superstore,
                                          Gala Xpress and
                                          Checkout
     Findings: Wholesale 3
1. The trend at wholesale level is
   toward greater integration
   with retailers – has
   advantages for both sides:
                                                            Sales to other
      Stability of demand for                              Customers 10%
        wholesalers
                                            Sales to Non-
      Access to group purchasing           Affiliated
        strength for retailers              Retailers 12%
2. Implication for competition:
      Within a group the offerings                            Affiliated
        of the affiliated retailers are                        Retailers
        becoming more uniform                                  78%

      Competition is between                               Sales to Affiliated
        affiliated retailers of different                   Retailers 78%
        groups
      Partly explains the stability of
        market positions of
        wholesalers
         Conclusion on Structure
1. The Grocery Monitor has facilitated a comprehensive mapping of
   the retail and wholesale levels of the grocery supply chain.

2. The exercise has revealed a number of bottlenecks in the
   grocery sector:
        Wholesale level of the grocery supply chain is concentrated
        Local retail markets may also be concentrated/entry difficult

3. This piece of work places the Competition Authority in a strong
   position to pursue any necessary enforcement activity in the
   sector.

4. Furthermore, it is hoped that by putting the information
   contained in these reports in the public domain, the often
   controversial debate concerning this important sector will in
   future be better informed.

				
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