Sale of Share Agreement Australia

							              ABA Section of International Law
              Committee on International Antitrust Law




Rising Grocery Prices and
Australia's anti-trust law
                           Wolfgang Hellmann

21 May 2008
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AUSTRALIA - Grocery Industry & Antitrust Law

1. Structure of Australia's Grocery Industry

2. Merger Review in the Grocery Industry

3. Charter to promote independent sales of supermarkets
   (2005)

4. Grocery Inquiry


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1. Structure of Australia's Grocery Industry
• Suppliers
       • National and regional producers
       • Overseas suppliers and importers
• Wholesale
       • Woolworths (vertically integrated)
       • Coles (vertically integrated)
       • Metcash ("independent")




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1. Structure of Australia's Grocery Industry
• Retail
       • Woolworths (750+ supermarkets / ~44% market share)
       • Coles (500+ / ~34%)
       • Independent Retailers/Banner Groups (4,000+ / ~18%)
            • Typically: medium-sized retailers with smaller range of
              products (eg. IGA)
       • New entry in 2000: Germany's Aldi (300+ / ~4%)
            • Mainly private label and less recognised "cheaper" brands
       • [Specialist retailers with single product category – not part
         of the supermarket market]
    NOTE: market data only indicative



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2. Merger Review in the Grocery Industry
• Section 50 of the TPA prohibits any acquisition of shares
  or assets that would result in a "substantial lessening of
  competition" in a "substantial" market in Australia.
• No mandatory pre-merger notification requirement in
  Australia (unlike in the US + EU, similar to UK regime)
• Standard practice of seeking "informal clearance" from
  the regulator if competition concerns
• The regulator, the Australian Competition & Consumer
  Commission (ACCC), has the power to seek injunction
  from the Court to stop a merger from proceeding



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2. Merger Review in the Grocery Industry
• Since 2005, the ACCC has reviewed
       • 13 acquisitions in the grocery industry
          • Metcash / Foodland 2005: 82 stores
            • Woolworths / Action Stores: 19 stores (1 divestiture)
            • others: only one supermarket ("creeping acquisitions")
       • further acquisitions in the liquor industry
• Expansion strategy of the two national retailers was to acquire
  independent stores in locations where they are not yet present
       • no geographic overlap – no SLC
       • effect of "creeping acquisitions" on wholesale level and demand
         side?



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2. Merger Review in the Grocery Industry
• Definition of the relevant grocery markets
       • Supermarket retailing - local
            • Provision of a bundle of grocery products to consumers within a
              local geographic area
            • Delimitation of the relevant geographic area depends on local
              circumstances (particularly, consumers' purchasing pattern)
       • Supermarket wholesaling – national or State-based
            • Market in which supermarket wholesalers supply products to
              supermarkets for retail sale, either nationally or State-based
       • Supermarket procurement markets – national or regional
            • National or regional (eg. perishable products) markets for the
              procurement of the various products sold by supermarkets


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2. Merger Review in the Grocery Industry
• Horizontal Acquisitions
       • ACCC clearance if no geographic overlap or if sufficient
         competition in relevant geographic area
       • Note: Convenience stores constrain supermarkets only to a
         limited extent: service - but not price
       • If geographic overlap: divestiture may be available to
         address competition concerns (eg. Woolworths / Action
         Stores in 2005)
• Barriers to entry
       • Access to suitable sites
       • Economies of scale


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2. Merger Review in the Grocery Industry
Creeping acquisitions
• Definition: several acquisitions of independent retailers,
   each resulting only in a small increase in concentration
   with little effect on competition
• Issue: While each single acquisition (assessed
   individually) is unlikely to result in a substantial
   lessening of competition (absent local competition
   issues), a series of acquisitions may have a significant
   cumulative effect on competition.



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2. Merger Review in the Grocery Industry
Creeping acquisitions – 3 main ACCC concerns
1. Loss of sales volumes and loss of scale economies of
   the independent wholesalers vis-à-vis Woolworths
   and Coles
2. Loss of the independent wholesalers' bargaining
   power with suppliers vis-à-vis Woolworths and Coles
3. Increase of the buying power of Woolworths and
   Coles with the suppliers




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2. Merger Review in the Grocery Industry
Theories of competitive harm ("vicious circle")
• Higher cost of independent wholesalers
• If absorbed by independent wholesalers, this will result in
  less retail support and customer service in the short run
• In the long run, independent wholesalers will pass on
  higher cost to independent retailers, which will become
  less price competitive
• Consumers will switch from independent retailers to
  Woolworths or Coles
• Further: Increasing risk of oligopsony power by
  Woolworths or Coles on the demand side

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3. Charter to promote competitive sales of
independent supermarkets
• Charter took effect on 1 July 2005
• Good-faith commitments by the "Big Three"
  wholesalers (Woolworths, Coles & Metcash)
• Objective
       • promote fair competition between potential buyers of
         independent supermarkets, particularly by ensuring
         competitive bidding process
       • benefit consumers by promoting competition in the
         supermarket sector, particularly by helping to address
         concerns about creeping acquisitions

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3. Charter to promote competitive sales of
independent supermarkets
 • Party must not in connection with the acquisition of a supermarket
   prior to entering into a Sale Agreement:
        • seek to secure from the Independent Retailer the right to exclusively
          negotiate or to otherwise prevent or inhibit the owner of the
          supermarket from dealing with other parties to secure the best price
          for the supermarket; or
        • otherwise act to limit the right or ability of the Independent Retailer to
          seek other potential purchasers for the supermarket or frustrate the
          attempts of the Independent Retailer to do so, including by imposing
          unnecessarily broad confidentiality obligations.




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3. Charter to promote competitive sales of
independent supermarkets

• If a Party considers that another Party has breached
  the Charter, these Parties will, in good faith, seek to
  agree on whether a breach has occurred and, if so,
  negotiate an appropriate outcome.




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4. Grocery Inquiry
Background
• Recent OECD data suggests that food price inflation has
  been much higher in Australia than in other OECD
  countries
• Australia's new Labour Government includes (for the first
  time) a "Minister for Competition Policy & Consumer
  Affairs" (Chris Bowen)
• On 22 January 2008, Mr Bowen directed the ACCC to
  commence a formal inquiry into grocery prices



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4. Grocery Inquiry
• The "heart" of the grocery inquiry is a public consultation
  process, including public hearings in all major cities in
  Australia
• The ACCC has used its compulsory information gathering
  powers (section 155 TPA)
• The final ACCC report is due by 31 July 2008




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4. Grocery Inquiry
The inquiry covers the following matters
• structure of the grocery industry at supply, wholesale
  and retail level ("farm gate to cash register")
• mergers and acquisitions by national retailers
• nature of competition
• competitive position of small and independent
  retailers
• pricing practices
• factors influencing the pricing of inputs and any
  impediments to efficient pricing of inputs


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