WRITTEN QUESTION E-1778/99

by Erik Meijer (GUE/NGL) to the Commission

(11 October 1999)

Subject: The trend towards concentration in the food industry

1. Is the Commission aware of the article Supermarkets go shopping for a merger in the Financial Times of 4 September 1999 which describes the increasing degree of concentration in the food industry, and has it taken note of the following quotes:

(a) In the last 12 months [retailers in the food sector] have seen more consolidation in absolute scale than mldr in the last 12 years;

(b) top 25 [food retail chains] will control 40 % cent of global retail spending (by 2009);

(c) a mere five to six will be the real world leaders, with annual sales in excess of $ 140 billion?

2. Is the Commission also aware that the facts presented in question 1:

(a) are an obstacle to honest competition benefiting the consumer;

(b) threaten the position of small independent firms which provide a valuable service to everyone unable to visit a megastore because of high transport costs, age or infirmity, for example;

(c) reinforce the trend for wholesalers to favour large retailers (supermarkets, department stores, hypermarkets and megastores etc.) through bulk discounts and different prices and terms of payment; and

(d) tend to destroy existing jobs in small and medium-sized businesses?

3. Given the disadvantages of this increase in scale, which outweigh the advantages for some of the buying public, is the Commission prepared to submit proposals for the protection of small independent firms from the aggressive behaviour of megastores and the like, such proposals being based on the undeniable advantages of the continued existence of independent firms in the food sector for job opportunities, the consumer and society in general?

Answer given by Mr Monti on behalf of the Commission

(22 November 1999)

In the framework of the Community rules on competition and, in particular, Council Regulation No 1310/97 of 30 June 1997 amending Regulation (EEC) No 4064/89 on the control of concentrations between undertakings(1) (Merger Regulation), the Commission examines mergers and acquisitions where certain minimum turnover thresholds are achieved by the companies concerned (concentrations having Community dimension). The parties to such concentrations have to notify the project to the Commission and are as a rule not allowed to implement it before the receipt of a clearance decision. If a concentration threatens competition in a distinct market within a Member State, the Commission, according to Article 9 of the Merger Regulation, has the possibility to refer the examination of such a concentration to the Member State, provided it receives a reasoned request for referral from the authorities.

In the context of merger control, the Commission examines whether concentrations are compatible with the common market or not. If the Commission after its market investigation comes to the conclusion that a concentration would create or strengthen a dominant position impeding effective competition (monopoly or joint dominant position of several undertakings), it declares the proposed deal incompatible with the common market.

So far, the Commission has examined around two dozen cases in the food retail sector in various European economic area (EEA) Member States. There are usually two markets examined by the Commission: first, the retail market, where the retailers are suppliers and their customers are the final consumers, and second, the upstream markets, where the producers of food and non-food products are suppliers and the retailers are their customers.

In one case, the proposed concentration between Kesko and Tuko (M. 784; 1996), both Finnish companies active in the sale of daily consumer goods in Finland, the Commission concluded that the operation would create a monopolistic supply structure in large parts of the Finnish market, with combined market shares of 50 % on a national level. The concentration was therefore declared incompatible with the common market. In another case, Tesco/ABF (M.914; 1997), concerning the food retail sector in Ireland and Northern Ireland, the Commission cleared the case taking note of undertakings offered by the parties to the Irish government with regard to the supply-side. In the case Rewe/Meinl (M.1221; 1998), concerning the Austrian food retail sector, the Commission cleared the concentration subject to heavy commitments offered by the parties, limiting the proposed deal to one third of the target's turnover and to certain regions of Austria. Two other cases, Promodes/Casino (the parties later abandoned the project) (M.991; 1997) and Promodes/S21/Gruppo GS (M.1086; 1998) were partially referred to the Member States concerned and consequently dealt with by the French and Italian competition authorities, which made their approvals subject to several undertakings by the parties concerned.

In its examination of the relevant markets, the Commission takes into account various criteria, in particular the need to maintain and develop effective competition within the common market in view of actual and potential competition, the market position of the undertakings concerned and their economic and financial power, the existing supply and demand trends for the relevant goods and services, the interests of the intermediate and ultimate consumers and the technical and economic progress provided that is to the consumers' advantage. In recent retail decisions one particular issue the Commission had to consider in

more detail was the issue of buyer power, that is whether and how the increase in bargaining power of large supermarket chains affects the competitive position of their suppliers, that is the producers of daily consumer goods, and also whether it can pose concerns with regard to competition where the supermarket chains act as sellers, that is in relation to other retailers and with respect to final consumers. The Commission will have to take this aspect carefully into consideration when examining a concentration.

Another way to protect small independent firms is to encourage them to co-operate, as they will have little chance of becoming or remaining competitive unless they pool some or all of their functions. Businesses have to reach a critical mass before they can buy and sell on best terms. The Commission welcomes co-operation between small and medium size enterprises (SMEs) when this co-operation allows them to increase their efficiency and to expand their productivity and competitiveness.

The draft regulation on exemption from the provisions on vertical restraints on which the Commission is currently working represents considerable progress in this area. This regulation takes account especially of the particular circumstances of associations of independent retailers. On the basis of this legal framework, the Commission will enable associations of small retailers to conclude vertical agreements with respect both to their suppliers and to their members between commercial SMEs, in particular through the exchange of ideas and information about good practices in this field.

(1) OJ L 180, 9.7.1997.