98/602/EC: Commission Decision of 15 October 1997 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M.938 - Guinness/Grand Metropolitan) (notified under document number C(1997) 3169) (Only the English text is authentic) (Text with EEA relevance)
Date: 1997-10-15
Institutions: European Commission
Subjects: United Kingdom, alcoholic beverage, beer, beverage industry, merger, merger control

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 15 October 1997

declaring a concentration to be compatible with the common market and the
functioning of the EEA Agreement

(Case No IV/M.938 — Guinness/Grand Metropolitan)

(notified under document number C(1997) 3169)

(Only the English text is authentic)

(Text with EEA relevance)

(98/602/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European
Economic Area, and in particular Article 57(2)(a) thereof,

Having regard to Council Regulation (EEC) No 4064/89
of 21 December 1989 on the control of concentrations
between undertakings (1), as amended by the Act of
Accession of Austria, Finland and Sweden, and in par-
ticular Article 8(2) thereof,

Having regard to the Commission Decision of 20 June
1997 to initiate proceedings in this case,

Having given the undertakings concerned the oppor-
tunity to make known their views on the objections raised
by the Commission,

Having regard to the opinion of the Advisory Committee
on Concentrations (2),

WHEREAS:

(1)

On 16 May 1997 Guinness plc (‘Guinness') and
Grand Metropolitan plc (‘GrandMet') notified to the
intention to create a new
Commission their

(1) OJ L 395, 30. 12. 1989, p. 1; corrected version OJ L 257, 21.

9. 1990, p. 13.

(2) OJ C 329, 27. 10. 1998.

company, to be called GMG Brands plc (‘GMG') in
which they will merge all their business activities.

(2)

(3)

By Decision of 6 June 1997 the Commission
ordered the continuation of the suspension of the
notified concentration, pursuant to Article 7(2) and
Article 18(2) of Regulation (EEC) No 4064/89 (‘the
Merger Regulation') until it takes a final decision.

On 20 June 1997, after examination of the applica-
tion, the Commission concluded that the operation
fell within the scope of the Merger Regulation and
raised serious doubts as to its compatibility with
the common market and decided to initiate
proceedings pursuant
the
Merger Regulation.

to Article 6(1)(c) of

I. THE PARTIES

A. GUINNESS

(4)

Guinness is the UK-registered holding company of
a group whose principal business activities are the
production and distribution, throughout the world,
(United Distillers — ‘UD') and the
of

spirits

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L 288/25

brewing of beer. It also has interests in hotels and
in publishing.

be matured in bulk and/or blended with other alco-
hols or other flavourings before bottling.

(5)

(6)

(7)

(8)

B. GRANDMET

GrandMet is the UK-registered holding company
of a group whose principal activities are the
production and worldwide distribution of spirits
(International Distillers and Vintners — ‘IDV'), also
food manufacturing (Pillsbury, Haagen-Dazs) and
ownership of fast-food restaurants (Burger King).

(9)

II. THE OPERATION

to create GMG.

The operation consists of the merger of the two
parties’ businesses
It will be
effected by means of a Scheme of Arrangement of
GrandMet under section 425 of the UK Companies
Act 1985. Guinness will be renamed GMG Brands
plc and its shareholders will retain their holdings
through shares in the new company. The business
of GrandMet will be vested in GMG; shareholders
in GrandMet will receive one GMG share for each
GrandMet share. Immediately after the merger,
former GrandMet shareholders will hold approxi-
mately 52,7 % of GMG, and former Guinness
shareholders the remainder.

III. THE

AND
CONCENTRATION
COMMUNITY DIMENSION

THE

The operation is a merger of the two parties and is
accordingly a concentration under Article 3(1)(a) of
the Merger Regulation. The parties have combined
aggregate worldwide turnover of more than ECU
5 000 million (Guinness has turnover of more than
ECU 5 000 million and GrandMet more than ECU
11 000 million) and each has Community-wide
turnover of more than ECU 250 million (each party
having turnover of more than ECU 3 000 million).
They do not achieve more than two thirds of the
latter within one and the same Member State. The
operation therefore has a Community dimension. It
the criteria under Article 2 of
does not
Protocol 24 to the EEA Agreement, and therefore
does not fall to be treated as a cooperation case
under that Agreement.

fulfil

IV. COMPATIBILITY WITH THE COMMON
MARKET AND WITH THE FUNCTIONING
OF THE EEA AGREEMENT

A. RELEVANT PRODUCT MARKETS

1. Horizontal aspects

The activities of the parties overlap materially in
the supply (manufacture and wholesale distribu-
tion) of spirits throughout the world. Both parties
manufacture a range of spirits covering all the main
internationally-recognised spirit
types. However,
they do not manufacture local spirit types such as
Korn, popular in Germany, or genever, popular in
Belgium and the Netherlands. Spirits are produced
by the distillation — heating and condensation —
of fermented fruits or cereals with water to yield a
strong yet palatable alcohol. The distillate may then

is,

(that

A continuum of possible product market defini-
tions was put forward in the course of the Commis-
sion’s investigations. In decreasing order of breadth,
they comprise: ‘all spirits' (as originally proposed by
the parties); various groupings — for example,
‘brown' and ‘white'
separating
spirits,
whiskey (1), brandy and so forth on the one hand
from gin, vodka and so forth on the other); separate
markets for each spirit of the same general type,
such as gin, whisky, brandy, vodka, rum, further
segmentation by origin/quality,
for
for example, Scotch whisky
whiskey, separating,
finally, subdividing each
from other types; and,
(narrow) spirit type by price/quality — thus, Scotch
would be subdivided into, for example,
‘de luxe',
‘premium' and ‘standard'. The various possibilities
are examined below.

especially

(a) All spirits

(10)

The parties provided details of consumer surveys
which, in their view, suggested that consumers were
willing to substitute one type of spirit for another,
and even to substitute other drinks, according to
the occasion, availability and price. The Commis-
sion noted, however, that where those surveys (most
of which were originally aimed at addressing taxa-
tion issues) employed price-change data, the overall
levels of change (which mainly reflected changes in
taxation) were much higher than those normally
used by competition authorities as an aid to market
definition.
also noted that occasion-based
consumption patterns did not of themselves in-
dicate a wider product market. The tendency to
consume different spirit types on different occa-
sions (for example, gin before a meal, brandy after-
wards) implies that consumers have preferences for
several specific types rather than that
they are
indifferent as to which type they consume (which
they would have to be if the products were close
substitutes). This was supported by the Commis-
sion’s own investigations. The bulk of competitors
and customers who responded to the Commission’s

It

(1) The term ‘whiskey' is used throughout to describe all whiskey
types (Scotch, Irish, American, Spanish) both collectively and,
except
the traditional
spelling — without an ‘e' is used.

individually. For Scotch,

for Scotch,

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question on the subject indicated that an increase
in the price of their preferred spirit brand or type
would not induce them to change to a different
product category. Moreover there are significant
types involve
supply-side differences. All spirit
distillation, but
ingredients and processes vary
considerably. On the basis of all these considera-
tions,
the Commission considered that an ‘all
spirits’ market definition was unduly wide for the
purposes of assessing this case.

supported a relatively narrow definition, character-
ising most spirit drinkers as having a degree of
loyalty towards one or a few specific brands within
the category (or categories) of choice, and with
occasion-based consumption patterns, which were
seriously
well-entrenched and unlikely to be
disturbed by relatively small price
variations
between types.

(b) White and brown spirits

‘White' spirits: As the parties pointed out, there
appears to be some scope for employing the same
basic distilled grain spirit to produce a variety of
white spirit types (such as gin or vodka and their
derivatives). However, other aspects of the manufac-
turing process differ — for example, to produce
gin, juniper (and sometimes other flavours) must be
added during distillation or afterwards; vodka is
usually unflavoured, but may be distilled several
times before bottling, white rum uses a different
fermentation process (and ingredients) from those
used in gin or vodka production. On the demand
side, the parties themselves revised their initial view
to some extent, stating that in practice consumers
did not consider the different main white spirit
types (gin, vodka) to be substitutes for each other;
the age and social profiles of
the consumers
concerned were significantly different.

‘Brown' spirits: For brown spirits such as whiskey,
brandy, or dark rum, there is effectively no scope
for supply-side substitution. They acquire their
distinctive flavour from the ingredients used in the
distillation and from the maturation process,
whereas white spirits are seldom matured and have
little flavour of their own. On the demand side, as
already mentioned, consumption patterns do not
support the notion of a brown spirits market —
consumers may, for example, drink both brandy
and whiskey, but on different occasions, not as
substitutes.

(c) Segmentation by spirit type

(14)

(15)

(16)

appears

in spirits

The strongest determinant of product market
boundaries
that of
consumer demands and preferences, since they will
drive the stocking and marketing policies of
retailers, wholesalers and ultimately manufacturers.
Third parties — both competitors and customers
the Commission generally
— consulted by

to be

and

expenditure

The importance of branding, and its application to
individual spirit types,
is a key characteristic of
competition in the spirits industry and is not
consistent with a product market wider than that
for each main spirit type. Product development,
advertising
are
promotion
normally focused on the brand rather than the
category or company, especially at consumer level.
Thus, for example, advertisements are typically for
Johnnie Walker’ whisky rather than for Guinness’s
range of whiskies or for their spirit products collec-
tively. It is also of interest in this connection that,
in general, brands do not appear to be easily trans-
ferable between spirit types; for example, there is
no Johnnie Walker gin or Gordon’s whisky. This
behaviour is consistent with product markets based
on each spirit type, since it implies that manufac-
turers have adopted a strategy of branding for, and
within, each spirit type in order to satisfy specific
consumer demands in terms of taste, price and
image.

(d) Segmentation within spirit type

Some third parties considered that country of
origin was an important defining factor for some, if
not all spirit types. This point was most frequently
raised in regard to whiskey, and in particular
Scotch. It was pointed out that the industry markets
Scotch, Irish, American, Canadian and other whis-
kies separately, and that for Scotch in particular,
national legislation laid down certain requirements
(it must be wholly distilled in Scotland and
matured there for at least three years before it can
be sold as Scotch).

In the Community as a whole, Scotch accounts for
the great majority (over 80 %) of whiskey sales, and
the parties’ main interests are in Scotch rather than
other whiskey types. For
the
present case, therefore, the issue of segmentation of
whiskey by origin is only analysed further where
the different possible definitions would lead to
significantly different shares and overlaps (notably,
Spain and Ireland).

the purposes of

(11)

(12)

(13)

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(17) A similar approach is adopted to the possible
substitutability between gin and genever, where it
has been suggested that it is unnecessary to sep-
arate ‘London' types from local products, and, in
the Benelux countries in particular, from ‘Genever'.
The issue is considered further in the section on
Belgium/Luxembourg below.

(e) Further subdivision by price/quality

(18)

In most of the main spirit types, and especially in
whiskey, there is a wide range of products available
at different prices. Some
third parties have
suggested that there are in effect separate markets
for each quality level because,
for example, a
consumer who habitually drank a premium brand
would not regard a cheaper one as providing an
adequate substitute in terms of taste, image and so
forth. Price data provided by the parties show
generally that in most markets there tend to be
products available (both from the parties and from
their competitors) at all points along the range.
take
However,
account of the importance of particular brands in
terms of their market share. Accordingly this point
is
and
geographic markets where the distinction is likely
to be relevant.

those price series data do not

in those product

examined further

(f) Liqueurs

(19) Given that there are many different liqueurs, each
with highly distinctive taste and other character-
istics, it appeared reasonable to assume, as a point
of departure, that in general each liqueur consti-
tuted a separate, niche product market. No infor-
received during the
mation or argument was
Commission’s investigation to suggest otherwise.

2. Vertical issues

(20)

Like most of
the major players in the spirits
industry, the parties’ distribution systems in their
developed markets show some degree of vertical
integration, with the use of wholly owned subsidi-
aries responsible for the exclusive distribution of
their products at national level. Like their compet-
itors, the parties may distribute various spirits on

is

In general, however,

third party manufacturers or brand
behalf of
owners.
such third-party
distribution accounts for only a relatively small
proportion of their total distribution activity. This
suggests that the primary function of these ver-
tically integrated distribution operations
to
protect the parties’ brands rather than to undertake
distribution on behalf of others. Integration into
distribution allows the supplier to maintain control
over the marketing and distribution of the brands
which it owns, thereby safeguarding the all-import-
ant image of those brands in the market-place.
Accordingly, their role as independent distributors,
competing actively for distribution of third parties’
brands, is likely to be limited (for example, to those
instances where they do not possess an important
brand of their own in a particular product category).
In those instances where the parties appear to play
a more significant role in the distribution of third-
party products, this is considered in more detail
below.

(21)

On-trade and off-trade (1): A question arises as to
whether the conditions of competition are suffi-
ciently different to justify separate treatment for
supplies to and from the on-trade and off-trade. A
number of elements could be taken to suggest that
those retail channels might constitute separate
product markets. For example, on-trade consumers
usually buy a smaller measure (a glass rather than a
bottle) and the purchase also includes the provision
of the related services (use of the premises and so
forth). Consumers may also be less price-sensitive
when purchasing from the on-trade; for example,
in the United Kingdom, a 5 % change would typ-
ically give a difference of a few pence on a glass
compared to some 50 pence on a bottle. However,
the
in the present case the primary impact of
operation is in terms of supplies to wholesalers and
large retailers, since small retailers, whether in the
on-trade or the off-trade, acquire their supplies
from the
from those sources rather than direct
parties. Therefore the different characteristics of
each channel are taken into account where relevant
in the assessment of the affected markets.

(22) Duty-free sales: The parties submitted that duty-
free sales were a
separate market. Duty-free
purchases of spirits are only available to those trav-
elling by air or sea across borders. They are often
made as gifts (as evidenced by the wide range of
special packages available in duty-free shops) and
probably compete more strongly with other duty-
free goods such as perfume rather than with non-
duty-free spirits. No third-party evidence was
received to contradict this view.

(1) The terms ‘on-trade' and ‘off-trade' are commonly employed
in the industry to distinguish the two retail channels:
‘on-
trade' that is, consumption on the premises where the product
is purchased, comprises supplies to and from bars, restaurants,
caf(cid:130)s and hotels (sometimes referred to as the ‘horeca' (hotel/
restaurant/caf(cid:130)) sector);
is consumption away
from the place of purchase: covers sales through general and
specialised shops, supermarkets, retail grocers, and so forth.

‘off-trade',

that

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(23)

(24)

3. Conclusion

In view of the above, the Commission considers
that the relevant product markets in this case, at all
levels of the supply chain, are in general no wider
than those for each of the individual internation-
ally-recognised main spirit
types (whiskey, gin,
vodka, rum and so forth) and for each liqueur.
Narrower definitions may, however, be appropriate
to specific product or geographic areas. Where such
distinctions are likely to be relevant to the merger’s
effect on competition, they are considered further
below. The Commission accepts, however,
that
spirits constitute a separate
duty-free sales of
market.

retail prices would vary little between Member
States — indeed,
there would cease to be any
incentive to engage in parallel trade.

(28)

The position is, however, different for duty-free
sales. These have characteristics, such as packaging
and quantity (and sometimes alcoholic strength)
differences compared to non-duty-free equivalents,
and an international
just Community) and
(not
the
transient customer base, which suggest
market for them is likely to be at least EEA-wide.

that

(29) Accordingly, the Commission concludes that, with
the relevant
the exception of duty-free sales,
geographic markets in this case are no wider than
national.

B. RELEVANT GEOGRAPHIC MARKET

C. ASSESSMENT

The parties contended that the relevant geographic
market was Community (or EEA) wide, pointing to
relatively low transport costs, absence of import
restrictions, moves towards harmonisation of taxa-
tion, and the extent of parallel trade, assisted by the
development of
the ‘under-bond' warehousing
system by which spirits can be shipped across
borders without payment of duty. The Commis-
sion, however, considers the relevant markets to be
essentially national, for the following reasons.

(25) Consumption

patterns

vary widely

between
Member States. The total amount consumed per
capita varies greatly. In several Member States,
locally produced spirits are prominent which are
virtually unknown elsewhere, such as Korn in
Germany or ouzo in Greece. Even among the inter-
nationally recognised types, consumption varies
significantly between countries, both as regards the
type of spirit and in terms of brands.

(26) Distribution is also organised primarily on a
national basis. Although production facilities are
concentrated, with a few plants serving the whole
like their main
of the Community, the parties,
competitors, operate wholly owned subsidiaries (or,
joint ventures) which handle
in some cases,
primary distribution and marketing
in each
national territory concerned.

(27)

location and relative

There is varying scope for parallel trade in spirits
between Member States (according to factors such
tax and
as geographic
currency levels). But major taxation and regulation
differences continue to exist between Member
States, and these are reflected, to a large extent, in
retail prices.
trade (or cross-border
purchases by consumers) were sufficient to create a
single market across the Community,
it would
become impossible for national governments to
sustain these distinctions in the long term, and

If parallel

1. The structure of the market

(30)

The operation will combine the activities of the
two largest spirits suppliers in the world (and, on
the basis of sales figures by value, the two largest in
the Community) creating a company approxi-
mately twice the size of its nearest rival, Allied
Domecq.

(31) However, as explained above, competition takes
place principally within each different spirit type,
and at national level. The Commission’s analysis
has accordingly focused on those product/national
markets where the merger produces potentially
significant market shares and aggregations, and/or
the possibility of a ‘portfolio effect' as described
below. The individual country markets are consid-
ered in detail in the appropriate sections of this
Decision. Nevertheless
there are some general
features common to the individual country assess-
ments, and these are considered here.

(a) Manufacturing

that

(32) Although the parties will have the scope to ration-
alise their production facilities, the merger does not
seem likely to have a major effect on competition
level. Their production facilities in the
at
Community are already quite concentrated, espe-
cially with regard to gin and vodka, with a few
plants responsible for most of the output, reducing
the opportunity for rationalisation of capacity or
other economies of scale which might
lead to
increased barriers to entry at that level. In whiskey
(the parties’ production being effectively all Scotch)
the scope for rationalisation or other economies
from the merger is also limited. There is some
excess capacity, but distilleries can fairly easily be
closed temporarily and brought back into operation
if demand recovers (the parties have several plants

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in this condition). In the case of malt whisky —
the high-quality product derived exclusively from
malted barley, which is mixed with the cheaper
grain whisky (mainly made from maize and so
forth) to produce the popular blends and is also
sold on its own — the product of each distillery is
highly distinctive in colour and flavour. In con-
the different malts are in continual
sequence,
demand both for
sale on their own and for
blending and there is accordingly little scope for
rationalisation.

(33) Grain whisky production, in which the parties will
have a [40-50 %] (1) combined share of capacity —
increment to Guinness (already the leader) of [15-
25 %] — presents relatively few barriers to entry by
comparison with malt whisky, and there remain
significant competitors, namely Allied Domecq
with [15-25 %] and Grants with [15-25 %]. The
plant (or still) employed is effectively the same as
that used for white spirits, and in contrast to the
pot stills used for malt whisky can be run continu-
ously. Moreover, flavour and colour characteristics,
and hence the nature and quality of the ingredients
(especially the water) used to produce them, are of
much less importance.

(34)

Some third parties raised the possibility that the
parties would be able to foreclose supplies of, in
particular, malt whiskies to competitors, many of
whom use some of the parties’ malts to make their
blends. The parties’ shares, and the increment, in
malt whisky are lower than in grain (combined
shares of [25-35 %]
increment to Guinness, the
leader, of [< 10 %]) and again there will remain
some substantial competitors, such as Seagram with
[5-
[10-20 %] and two others each with about
15 %].[ . . . ]

(35)

In the light of the above, therefore, the Commis-
sion takes the view that the merger will not create
or enhance a dominant position at the manufac-
turing level in any relevant product market.

(b) Branding

(36) As explained above, the spirits industry is to some
extent vertically integrated, with most of the largest
players (including the parties) active in both manu-
facture and distribution, although integration into
retail is uncommon (the United Kingdom being a
partial exception). Vertical integration into distribu-
tion is advantageous in product markets where
branding is important, because it allows the brand-
owner to retain full control of product develop-
ment, promotion and marketing. Retailers play

(1) This version of the Decision has been edited to ensure that

confidential information is not disclosed.

role in advertising
relatively little independent
branded spirit products — apart from their own
brands, if any — although they will work closely
with manufacturers where there is mutual ad-
vantage in doing so.

(c) Distribution

(37)

The larger spirits manufacturers also engage in
distribution on behalf of other suppliers, typically
through exclusive agreements covering a particular
national territory. This feature provides access to a
route to market for smaller suppliers without a
distribution network of their own. However it also
reduces the scope for competition in distribution
from independent distributors, and increases the
barriers to entry for a potential new supplier of a
brand which would compete directly with one
owned by the vertically-integrated supplier.

(d) Portfolio effects

(38) One competitor remarked that ‘In short the market
power deriving from a portfolio of brands exceeds
the sum of its parts'.

(39)

(40)

(41)

In addition to horizontal overlaps, assessed in detail
below, a key result of the merger, recognised as a
major part of its rationale by the parties and by
third parties, is that it combines the two parties’
ranges or portfolios of products and brands.

The holder of a portfolio of leading spirit brands
may enjoy a number of advantages. In particular,
his position in relation to his customers is stronger
since he is able to provide a range of products and
will account for a greater proportion of their busi-
ness, he will have greater flexibility to structure his
prices, promotions and discounts, he will have
greater potential for tying, and he will be able to
realise economies of scale and scope in his sales
and marketing activities. Finally the implicit (or
explicit) threat of a refusal to supply is more potent.

The strength of these advantages, and their poten-
tial effect on the competitive structure of
the
market, depends on a number of factors, including:
whether the holder of the portfolio has the brand
leader or one or more leading brands in a particular
market; the market shares of the various brands,
particularly in relation to the shares of competitors;
the relative importance of the individual markets in
which the parties have significant
shares and
brands across the range of product markets in
which the portfolio is held; and/or the number of
markets in which the portfolio holder has a brand
leader or leading brand.

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In addition the strength of a portfolio effect has to
be considered in the context of the relative strength
of competitors’ brands and their portfolios.

(49) General market conditions do not favour entry,
since there are barriers at all levels of the supply
chain.

(42)

(43)

(44)

The portfolio effect has been recognised in two
recent cases in the soft drinks sector (1).

Furthermore in response to the Commission’s
enquiries, competitors and customers recognised
the portfolio effect in practice; for example, of ten
firms responding to the question ‘does possession
of a leading brand in all or most spirit categories
help sales of spirits in general?' eight replied that it
would help a lot.

(45) At the hearing, major competitors of the parties
confirmed the existence of a portfolio effect and
provided evidence of how their portfolio could be
used.

(46)

The parties have said that consumers buy brands
the
and not portfolios. That
is true. However,
their products to the final
parties do not sell
consumers. They sell
them to intermediaries,
multiple retailers, wholesalers and others. Those
customers would buy a range of products from
GMG, and the fact that GMG would be able to
offer in many national markets a wide and deep
portfolio of
the
combined entity advantages in dealing with its
clients. The strength of any portfolio effect will
vary from geographic market to geographic market.
In the present case, the only market in which it has
been considered to be a significant feature in the
context of
is
in the section on
accordingly assessed further
Greece below.

leading brands would give

is Greece, and it

the assessment

(50) As mentioned above, in the Community as a whole
spirits demand is in decline. In general, therefore,
sales can only be obtained at
the expense of
competitors unless a new niche can be found.
Entry is further restrained by government restric-
advertising, promotion and
tions on alcohol
consumption. Retailers and wholesalers generally
require a licence, in many instances their number
and location is restricted to what governments
consider appropriate, and their opening hours are
also usually restricted. As in the case of tobacco,
most countries restrict advertising (especially on
television). There are also a variety of restrictions,
varying from country to country, on matters such as
that may be
labelling,
offered for sale.

strength and quantities

(51)

Entry into spirit manufacturing is not technically
difficult, although entry into Scotch is constrained
by the need to have access to supplies of matured
malt whisky from Scotland or else to develop one’s
own maturing facilities in that country (which by
definition will take several years).

2. Barriers to entry

(47)

Portfolio power can accordingly be seen, in part, as
a barrier to entry. There are, however, a number of
other barriers, which are outlined in general terms
here, although their precise strength will vary from
country to country and they are accordingly exam-
ined in more detail, where appropriate, in the rele-
vant sections.

(a) Commission’s initial view

(48)

In its ‘Statements of objections', the Commission
identified the following as potentially significant
barriers.

(1) Commission Decision 97/540/EC, Case No IV/M.794 —
Coca-Cola Enterprises/Amalgamated Beverages GB (OJ L 218,
9. 8. 1997, p. 15), Case No IV/M.833 — Coca-Cola
Company/Carlsberg AS.

(52) Distribution and marketing are potentially signifi-
cant barriers. As explained above the supply chain
is characterised by branding and portfolio effects
which increase the costs and time required for
successful entry even with a clearly distinctive and
innovative product or range. It is said for example
that it took 10 years for GrandMet to develop its
Bailey’s Irish Cream liqueur
into a recognised
brand carried by most retailers, and during most of
that time it was effectively unopposed. Together
with niche products like fruit-flavoured,
lower-
alcohol liqueurs (such as Archer’s peach schnapps
and Malibu coconut liqueur) it is almost the only
significant product innovation in the market of
recent years. There has been more line extension
(for example by introducing a premium whisky
brand with a name similar to an existing standard
one) but that option is available only to those with
established products. Famous Grouse
Scotch
(Matthew Gloag) is almost the only ‘new' brand of a

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L 288/31

share across

major spirit from the parties’ competitors to have
gained a material
the range of
Community markets, and again its development to
that position has taken a considerable number of
years. By contrast, Johnnie Walker is, in the words
of its own advertising ‘still going strong' after some
150 years, an illustration of the power of an estab-
lished brand. Japanese whiskies, although strong
on their home markets and based closely on Scotch
in terms of quality and nature of ingredients and
the manufacturing process, have so far failed to
make significant inroads into Community markets
despite considerable promotional efforts. Spanish
whiskey is virtually unknown outside Spain.

(53) New entrants need to have, or quickly develop or
acquire, not just one desirable product, but a range
of them, in order to counter the portfolio power of
competitors such as GMG. Using a third-party
distributor may assist in this, since it enables the
entrant’s products to be sold alongside the distribu-
tor’s existing range. But the vertical integration of
the major players in the industry limits the effect-
iveness of this approach, since an entrant’s product
is unlikely to be accepted or marketed vigorously
by the distributor if it competes directly with a
brand which he owns or for which he has the
agency. Entrants will need to advertise and promote
their brands heavily over a long period in order to
resistance and the barrier
overcome consumer
presented by the reputation of
the established
players. Retailers and wholesalers, especially large
ones, will often expect a significant listing fee for
carrying a new product (one respondent from the
United Kingdom indicated that the fee could reach
hundreds of thousands of pounds per retailer). The
entrants will need to take account of the import-
ance
shaping
consumer demand for a product, since customers
will be more likely to try a new product if they
only have to buy a glass of it rather than a bottle.
They will also need to have resources to defend
themselves from attack by the parties using their
incumbency advantages, for example, by targeting
selective discounts or price reductions at new
entrants’ brands. General market conditions are not
favourable to the taking of such risks. Overall,

consumption

on-trade

in

of

therefore, entry barriers appear generally to be very
high and likely to deter entry.

(b) The parties’ response

(54)

(55)

In their response to the Commission’s ‘Statements
of objections',
the parties made a number of
general points seeking to rebut this view. Those
points are examined immediately below while their
points on specific markets are dealt with in the
relevant sections.

The parties referred to a number of substantial
international spirits companies which had entered
the Community market within the last 10 years,
namely American Brands, Suntory, Bacardi Martini
are
and Brown Forman. Although all
undoubtedly substantial companies, their strength
varies between the national markets and several are
not new entrants in the sense that
they were
already well established in the spirits sector, albeit
not necessarily in the same national or product
markets.

these

(56) American Brands owns the Jim Beam bourbon
whiskey brand and has a range of other brands
which it either owns or distributes. It has acquired
two UK distillers, White & McKay and Inver-
gordon, and as a result has a share of around [5-
15 %] in the UK whiskey and vodka markets. But
its brands are generally secondary rather
than
category leaders and its share in the individual
country markets identified in this Decision as
causing concern is generally very small, both
overall and in the main spirit categories. Further-
more,
its products were established before they
were acquired by American Brands.

(57)

(58)

Suntory is a Japanese producer, primarily of
whiskey. It has acquired two Scotch malt whisky
distilleries
substantial
undoubtedly
resources. But its share in any spirit category in any
of the markets identified as being of concern is
very small (less than [< 5 %]).

and

has

Bacardi-Martini is only a new entrant in a very
narrow sense, since it is the result of the merger in
1993 of
two already very well-established com-
panies, Bacardi and Martini-Rossi, the latter being
domiciled in the Community. The products were
already established. On the same basis, presumably
GMG would itself be classed as a new entrant after
the merger.

(59)

(60)

(61)

(62)

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Brown Forman’s position is similar to that of
American Brands. It owns Jack Daniels, a leading
bourbon, and Southern Comfort, an orange-flav-
oured bourbon-based liqueur. But outside those
niche areas its share is very small in the markets of
concern. Both products were already well estab-
lished.

wished to encourage an entrant. The Commission
listing fees are not an insuperable
accepts that
deterrent. Nevertheless
they raise the price of
marketing a new brand or product in comparison
with that of an established one and to that extent
they constitute an entry barrier.

The parties also pointed to expansion by existing
suppliers as evidence that barriers were low,
asserting that such expansion showed that there
was an adequate threat of or potential for entry to
ensure that competition was not
significantly
reduced following the merger.

(64)

indeed
in product

incumbents have
and/or

diversified
Various
geographically
for
terms,
example Matthew Gloag has successfully developed
its Famous Grouse whisky outside the United
Kingdom and other Scotch producers, such as
Grants, have diversified into gin and/or vodka.
Nevertheless, those developments have generally
occurred at a slow pace. For example, it took some
four years for Famous Grouse to achieve a 5 %
share of whiskey in Greece, despite considerable
advertising spend and the brand’s high profile in
the United Kingdom.

The parties sought to rebut the Commission’s argu-
ment that advertising and promotion costs repres-
ented a significant barrier by suggesting, first, that
regulation of advertising merely presented a level
playing field to new entrants. The Commission
does not accept the level playing field argument.
Restrictions on advertising favour
incumbents,
whose products are known to customers and so
require less advertising, against entrants, whose
products are by definition unknown to customers.
Generally, and especially for entry into the main-
stream categories (that is internationally recognised
spirit types or categories) where incumbents are
well-established, significant sunk costs in terms of
advertising and promotional costs are an essential
prerequisite of entry, especially given the import-
ance of branding.

(63)

The parties suggested that listing fees charged by
retailers were not a significant barrier but exempli-
for
fied retailers’ buyer power. Matthew Gloag,
example, had evidently
found the necessary
resources to fund them for Famous Grouse and
they
retailers were free not

to charge them if

the Commission,

The parties also argued that distribution was not
the bottleneck in preventing and limiting entry
that
in its ‘Statements of ob-
jections', had claimed it to be. They pointed out
that in all Member States there were a number (in
some, a large number) of distributors willing to
undertake distribution of new products and brands.
They provided information suggesting that agency
distribution agreements were typically of short
duration (if
they had any fixed term) and that
changes were frequent. They also indicated that
part of the rationale for their (and competitors’)
move towards wholly-owned distribution facilities
was to guarantee a route to market for their prod-
ucts in the face of
losing existing
distribution arrangements if a competitor’s offer
became attractive to the distributor concerned. In
itself
independent
distributors who no longer have access to many
brands, no matter what terms they might offer.

the scope for

the risks of

reduces

this

(65) Nevertheless it remains the case that in several
Community markets the parties already have a
large share of spirits distribution. Where this occurs
there is a risk that new entrants will find them-
selves unable to obtain a route to market on favour-
able terms for any product which the parties may
consider to threaten those in their own portfolio.
Since the parties’ portfolio will be much enhanced
by the merger, the merger is likely to increase this
risk. Direct distribution, by supplying direct
to
retailers without
the use of an agent or inter-
mediary such as a wholesaler, may be a possible
alternative in some product and/or geographic
markets. But in practice this is unlikely to be a
viable option in most cases. In the case of supplies
to supermarkets, new entrants are likely to face a
requirement to pay a listing fee or to have to agree
to similarly onerous terms and conditions as the
price of getting their product onto the shelves. The
on-trade
fragmented, making direct
distribution generally uneconomic for suppliers.

is more

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L 288/33

(c) Conclusions on entry barriers

(66)

together with the other

The Commission accepts that new entry is possible
and has indeed taken place. But the scale and scope
of that entry does not, in general, appear to have
been significant, especially in the main spirit cat-
egories. This,
factors
described above, tends to reinforce the Commis-
sion’s initial view that barriers to entry in this
market are generally high. However, their precise
importance varies from country to country and
between products and is accordingly taken further
into account in the sections below concerning indi-
vidual countries.

3. Countervailing buyer power

the

size

concentrated,

to the assessment of

(67) Where entry barriers are high and market struc-
tures
and strength of
customers in the individual national markets is
particularly important
the
effect of a merger both in terms of horizontal
overlap and of any associated portfolio power.
Again,
the position in the present case varies
considerably between countries and is discussed
further in the next section of this Decision. But
there are also some common elements which are
examined here.

(a) Commission’s initial view

(68)

The Commission considered that, in summary, the
requisite structure, in consumer markets, for the
exercise of countervailing power as a means of
preventing creation or reinforcement of a dominant
supply position at a higher level in the distribution
chain appeared to be as follows. The retail and
wholesale customers must include several who are
each responsible for a significant share of sales by
the dominant supplier and by his competitors and
and
have
bargaining skills to put that advantage to use in the
buying process. Crucially, there must be alternative
suppliers capable of offering an equivalent range of
products on equally favourable terms and condi-
tions and the retailer or wholesaler must have
effective power to delist brands if the terms on
which he is offered them are not satisfactory. The
those conditions
Commission doubted whether

the necessary

technical

facilities

regards

were generally met in the spirits sector, especially
as
the ability to delist. A number of
suppliers, retailers and wholesalers, claimed that it
would be uneconomic to delist a leading brand.

(b) The parties’ response

The parties strongly disagreed with that analysis
and made a number of submissions in support of
the contrary view, as follows.

The parties produced data showing the total share
for all products of the top five retailers in the
Member States identified by the Commission as of
concern. Those shares ranged from some [5-15 %]
in Greece to some [30-40 %]
in Spain. They
produced similar data showing the shares of their
own sales in the countries concerned accounted for
by their largest
five customers in each. Those
shares varied from some [15-25 %] for Greece to
over [55-65 %] for Belgium (1). They also stressed
the importance of own-label sales, not only by
supermarkets, but also in some instances in their
view, by the on-trade.

The parties also quoted the views of a leading UK
stockbroker and merchant bank (HSBC) on buyer
power and its implications for
the merger. It
suggested that the supplier had more to lose than
the retailer in any negotiation over the possible
the supplier’s brands, principally
delisting of
because,
if delisting occurred, the retailer would
still have all the competitors’ brands, plus their
own brand (which in the United Kingdom — the
example given — accounted for as much as 60 %
of the retailer’s sales) whereas the supplier would
have lost a major customer.

The parties disputed the Commission’s view that
customers for spirits were ill-informed about prices
because the products were strongly differentiated
(branding) and were purchased relatively infre-
quently. The parties observed that spirits were
purchased more frequently than some other house-
hold products
and
suggested that some spirit brands were so-called
known value items since they were widely adver-
tised and consumers could, for example, compare
their prices with that of a duty-free equivalent.

electrical goods

such as

Finally, the parties challenged any notion that any
of their products were unique, must-stock items.
They suggested that their brands were no more (or
less) essential to retailers than those of their main
competitors. Retailers and wholesalers would need
a range of the main brands, but not necessarily all
of them. They also provided details from various
countries of instances where their products had
been delisted.

(69)

(70)

(71)

(72)

(73)

(1) Parties’ response to the ‘Statement of objections', p. 24.

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Official Journal of the European Communities

27. 10. 98

(c) Commission’s further assessment

(74)

(75)

(76)

rather

in the spirits sector;

The Commission has not claimed that buyer power
is non-existent
its
concern is that it will be insufficient to prevent the
creation or reinforcement of dominance in the
present case. As far as the dependency figures given
by the parties are concerned,
the Commission
notes that dependency varies considerably between
countries and that the share of the parties’ turnover
accounted for by the five largest customers in, for
example, Greece is relatively low (some [15-25 %]).
Also, since the on-trade is, in most Member States,
much more fragmented than the off-trade, both at
wholesale and retail level, those figures may over-
state the true strength of countervailing power,
since many on-trade retailers and their suppliers
will not have it. These factors are taken into
account in the consideration of buyer power in the
individual country sections that follow.

In the off-trade, the importance of own brands is
acknowledged. But if retailers and consumers really
found own-brands (whose margins are, according to
the parties, much higher than those of the main
brands) so attractive, it would seem reasonable to
expect a much greater degree of commoditisation
and the disappearance of brands from the shelves
than has actually occurred. Retailers appear to find
it necessary to stock a wide range of brands,
presumably because, as several have indicated to
the Commission in this case, if they do not they
risk losing a customer, not only for the whisky and
so forth, but for all the rest of their purchases from
the store as well.

It follows that permanent delisting of major brands
is generally not a realistic option for retailers;
accordingly, suppliers of those brands can, if neces-
sary, get tough in the knowledge that the worst
they can expect is a temporary delisting, perhaps
limited to the less important sizes. That could very
well be survivable, especially if, like the parties, the
supplier also supplies a wide range of other brands
and products. The stronger the brand and the port-
folio in question, the less realistic the threat of
delisting. By contrast, a less fortunate supplier
could well risk a permanent loss of his main or
only product.

(77) As regards consumer awareness of price and ability
to compare, the Commission remains of the view
that this is relatively limited in the spirits sector.
Comparisons between on- and off-trade prices are
very difficult, and within the on-trade, are compli-
cated by the bundling of goods and services. In the
off-trade, although purchases of spirits are, as the
parties suggest, more frequent than of electrical
goods for example, the frequency is still insuffi-
cient to allow effective comparison. Purchase of
spirits is unlikely, for example, to be on, a weekly
basis. With items such as electrical goods, by
contrast, comparisons are facilitated by the fact that
they are in most cases more expensive than spirits,
the consumer has more to gain by shopping
around, and consumer programmes and magazines
provide further help. Duty-free prices of spirits may
provide a base-line for comparison, but differences
in pack sizes, and in some cases, product strengths,
as between duty-free and other sales complicate the
matter. Moreover, duty-free purchases will, for most
people be even less frequent than non-duty-free
ones.

(d) Conclusions on buyer power

(78)

The strength of retailers and independent whole-
salers obviously varies greatly between countries.
The issue therefore needs to be analysed at that
level. But on the basis of the foregoing arguments,
it is not obvious that, throughout the markets of
concern to the Commission, buyer power is likely
to be sufficient to prevent the creation or reinforce-
ment of a dominant position as a result of the
merger.

V. EFFECTS

IN SELECTED NATIONAL/
PRODUCT MARKETS

(79)

section those markets

In this
in which the
Commission considers that dominant positions will
be created or strengthened are examined in detail.

A. GREECE

1. General overview of the market

(80) Greece is the seventh largest consumer of spirits in
the Community and in 1995 accounted for about
3 % of total Community sales by volume.

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L 288/35

(82)

(83)

(84)

(81)

the
Table 1 shows the relative importance of
different categories of spirits in Greece. An import-
ant
feature is the large share of consumption
accounted for by ‘other spirits', largely due to the
sale of ouzo, the national drink. A further feature of
the Greek market is the fact that although, in line
with Europe as a whole, overall spirits consumption
has fallen, the consumption of whiskey has grown.
However, operators in this market believed that
consumption of vodka, tequila, rum and gin, as
well as
fruit
schnapps, was growing as well. Whiskey is the most
consumed imported spirit, making Greece the
second whiskey market in Europe on a per capita
basis.

some innovative spirits,

such as

Table 1

Composition of spirits demand in Greece by 1995
sales volumes and values

Volume
(%)

Volume
(%)

All whiskey

45,1

52,3

Scotch whisky

42,8

48,8

Gin

Vodka

Other ‘white' spirits

Rum

Brandy/Cognac

2,8

7,8

0,6

4,2

9,6

2,1

6,1

1,0

4,5

8,2

Other

29,9

25,8

Liqueurs

8,5

13,4

2. Relevant product markets

The relevant product markets under consideration
in the Greek market are the internationally recog-
nised categories of spirits, that is whiskey, vodka,
gin, rum, brandy,
the various liqueurs (each of
which may constitute a separate niche product
market), and the local ouzo aperitif.

Scotch whisky accounts for 95 % of all whiskey
consumed in Greece (1). However, on the basis of
the market shares of the parties, the assessment of
the operation would be similar no matter whether
Scotch whisky or all whiskey is used. Therefore, the
assessment below is made on the basis of all
whiskey.

3. Market profile and position of the parties

(a) Position in the market

(Guinness)

The parties operate in Greece through wholly
owned distribution subsidiaries. These are United
Distillers Greece, a subsidiary of UD (Guinness)
and Metaxa S & H & A AEBE, a subsidiary of IDV
(GrandMet). The major brands of the parties are:
Johnnie Walker Red Label, Dewar’s, White Horse,
Bell’s, Haig, VAT 69
and J&B
(GrandMet) in Scotch whisky; Smirnoff (GrandMet)
in vodka; Metaxa (GrandMet) in brandy; Gordon’s
(Guinness) in gin; Ouzo 12 (GrandMet) in ouzo;
and Baileys, Malibu and Archer’s (GrandMet)
in
liqueurs and fruit schnapps. In addition, Guinness
distributes Bacardi
and
Finlandia vodkas, whereas GrandMet distributes
tequila Cuervo, both on a brand agency basis. Table
2 shows
individual and combined
market shares in 1995 by value at brand owner and
brand agency distributorship level, for the most
important product categories in Greece.

rum and Wyborowa

the parties’

Source: Form CO.

(1) In 1995, Scotch whisky accounted for 95 % of an all-whiskey
market, that is 2 541 thousand cases of a total of 2 654 thou-
sand cases (Source IWSR 1995).

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Table 2

Guinness

GrandMet

GMG

(%)

[40-50]

[45-55]

[—]

[75-85]

[80-90]

[—]

[—]

[:10]

[:10]

[:10]

[70-80]

[—]

[:2]

[25-35]

[30-40]

[10-20]

[45-55]

[50-60]

[70-80]

[75-85]

[80-90]

[25-35]

[30-40]

[15-25]

All whiskey

Scotch whisky

Brandy

Rum

Gin

Other

Tequila

Vodka

Source: IWSR 1995.

(b) Categories and brands of the parties

(85)

The parties are present in all the major categories of spirits. Their various categories of
spirits, as well as the relevant brands are shown in Table 3 below.

Spirit category

Whiskey

Vodka

Gin

Table 3

Guinness

Johnnie Walker R/L
Dewar’s
White Horse
Bell’s
Haig
Vat 69
Black & White
Mackenzie
Dimple
Crawford’s
Cardhu
Oban
Johnnie Walker B/L
Talisker
Lagavulin
Dalwhinnie
Classic Malts
Glenkinchie
Cragganmore
Rebel Yell

Finlandia
Wyborowa
Koskenkorva

Gordon’s
Tanqueray

GrandMet

J&B Rare
J&B Rare

Smirnoff

Bombay Sapphire

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Spirit category

Guinness

GrandMet

Rum

Tequila

Aperitif, ouzo

Brandy

Liqueur

Bacardi

Parranda

Jos(cid:130) Cuervo

Karavaki
Pimm’s

Ouzo 12
Cinzano
T(cid:146)o Pepe

Botry’s

Metaxa

J(cid:132)germeister

Bailey’s
Grand Marnier
Sheridans
Malibu
Archer’s schnapps

Italicised: brand agency distributorship.

(86)

It may be seen from Table 3 that the combined entity will cover a broad range of spirits
categories, in fact all the major and popular types of spirits. Taken separately, Guinness has
currently a strong position in whiskey, gin and rum, whereas GrandMet is strong in brandy,
ouzo, tequila and liqueurs. The merger thus fills the gaps in the respective portfolios of
each party. The resulting combined portfolio will be by far wider and deeper than that of
competitors.

(87) After the proposed operation has been completed, the combined entity will account for
above [45-55 %] of the overall trade of spirits ([20-30 %] from Guinness and [10-20 %]
from GrandMet), covering all the major categories of spirits marketed in Greece. The next
largest competitors, Karoulias/Berry Brothers and Allied Domecq, have shares of [5-15 %]
and [5-15 %] respectively.

(88) More specifically, GMG will be the driving force in the whiskey market, with a market
share above [45-55 %]. In addition, it will be the largest supplier in categories such as gin
with a market share above [75-85 %]
(Gordon’s), brandy, with a market share above
[75-85 %] (Metaxa), and rum with a market share of [75-85 %] (Bacardi). Moreover, GMG
will supply other categories, such as tequila (Cuervo), ouzo (Ouzo 12), cream liqueurs
(Baileys and Malibu) and fruit schnapps (Archer’s).

(c) Aggregation

(89)

In so far as it concerns horizontal overlap in the individual categories, the proposed
operation will give rise to an aggregation of market shares in the whiskey market. As a
(that is
result, the combined entity’s share in this market would amount to [45-55 %]
[40-50 %] from Guinness and [< 10 %) from GrandMet). The parties considered the
accretion of [< 10 %] as a de minimis increment of shares in this market. However, the
Commission considers this accretion significant, in particular in the light of the pre-
existing high market share that one of the parties already had in this market, and of the
fact that it is the result of the addition of one single brand, namely J&B, to the existing
wide range of brands held by the other party. As can be seen in Table 4 in the top five
leading whiskies in Greece in 1995, GMG would occupy positions one, three and five
respectively with Johnnie Walker Red Label, Dewar’s and J&B [ . . . ].

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Table 4

(1 000s of cases)

Supplier

Brand

Guinness

Johnnie Walker R/L

Karoulias/Berry Bros

Cutty Sark

Guinness

Dewar’s

Allied Domecq

Ballantine’s

Grand Met

J&B

Remy Hellas

Famous Grouse

Amvyx

Grant’s

Source: Canadean 1996.

Sales

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

(90)

The rest of GMG’s product range would be composed of a variety of other brands (Black &
White, White Horse, VAT 69), and specialities, such as deluxe whiskies (Johnnie Walker
Black Label, J&B Jet, Dimple) or malt whiskies (Lagavulin, Glenkinchie and so forth). By
contrast GMG’s competitors do not have such a broad range of whiskey brands. Karoulias-
Berry Bros. supply Cutty Sark ([15-25 %] market share) and Allied Domecq Ballantine’s
([5-15 %] market share), but have no other significant brands that would give them
advantages similar to those that GMG will acquire.

(d) Portfolio effects

(91) Although there is no horizontal aggregation in other categories, the merger will bring
together existing high market shares in gin, brandy and rum. Guinness’ Gordon’s gin
accounts for over [75-85 %] of the gin market and is complemented by two premium
quality brands, that is Tanqueray (Guinness) and Bombay Sapphire (GrandMet). Competing
brands in this market include Allied Domecq’s Beefeater [< 10 %] and Four Seasons
[< 10 %], Amvyx’s Nicholson’s [< 10 %], and Seagram’s Burnetts [< 10 %]. In brandy,
Metaxa is the uncontested market leader with a market share of [70-80 %], whereas
competitors offer Remy Martin [< 2 %], Martell
[< 2 %] and
Hennessy with an insignificant market share. In rum, Bacardi is the leading brand with a
[75-85 %] market share, whereas its only potential competitor is Seagram’s Captain Morgan
[5-15 %]. For the rest of the rum market, an industry report (Canadean) makes reference to
‘cheap imitations of Bacardi'. Apart from the leading brands in their respective categories,
GMG would also have a number of second-string brands including White Horse, Black &
White, Bell’s, Haig, VAT 69, Mackenzie, Crawford’s, Dimple and Cardhu Scotch whiskies,
Finlandia and Wyborowa vodkas, Grand Marnier and Sheridans liqueurs, Tanqueray gin
and Karavaki and Kaloyannis ouzo.

[< 2 %], Courvoisier

(92) Accordingly, and given that market entry and countervailing buyer power are not signifi-
cant constraints, as explained below, the Commission considers that the parties have
existing dominant positions in the markets for gin, rum and brandy.

(93) Overall, GMG will be at least four times as big as the next largest competitors, none of
whom account for more than [5-15 %] of the spirits market. It will therefore become the
largest spirits importer and distributor in Greece. In 1996, Guinness achieved a turnover of
GRD [ . . . ] and GrandMet of GRD [ . . . ], in a total market of GRD 118,2 billion. The next
largest competitor, Karoulias-Berry Bros., which distributes the number two Cutty Sark
whisky, achieved a turnover of GRD [ . . . ].

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(94)

(95)

The issue of portfolio power is of particular relevance in the assessment of the operation
with regard to the Greek market. This is mainly due to the fact that the combined entity
will be present across the major categories of spirits, that is whiskey, gin, rum and brandy,
where it will be able to supply the leading brands, with the exception of vodka.

To date, the Greek market has been characterised by the presence of various suppliers,
none of which was strong across all the categories of spirits. As a result, customers, whether
wholesalers or retailers, have obtained their spirits from a variety of suppliers, according to
the latter’s strength in the various categories. It is precisely in those market conditions that
the combination of the most important spirits categories in one single supplier’s portfolio
is expected to enhance that supplier’s market power in individual categories.

(96) As can be seen in Table 5, the portfolio of brands which GMG will bring together will
include the top-selling brand in each of the main spirits categories, that is whiskey, gin,
rum and brandy, with the exception of vodka. It will also contain the best-selling brands of
tequila, ouzo and various liqueurs.

Table 5

Category

Brand

Supplier

Market share

Whiskey

Brandy

Gin

Rum

Tequila

Ouzo

Liqueurs

Vodka

Johnnie Walker R/L

Guinness

Metaxa

Gordon’s

Bacardi

Cuervo

Ouzo 12

Bailey’s

GrandMet

Guinness

Guinness

GrandMet

GrandMet

GrandMet

Stolichnaya

Seagram

[20-30 %]

[70-80 %]

[70-80 %]

[70-80 %]

[30-40 %]

[20-30 %]

[5-15 %]

[20-30 %]

is of crucial

(97) As stated above, whiskey is by far the largest
category of spirits sold in Greece. However, the fact
that GMG will include brands with very significant
market shares in smaller categories is also import-
ant. For example, even if gin or rum have lower
sales than whiskey, the presence of Gordon’s and
Bacardi
importance to a particular
outlet, as these brands have been driving their
respective categories for a long time and are identi-
fied with the category to which they belong.
‘gin
According to Canadean 1996 on Greece,
continues
strong
performance by Gordon’s'. The same industry
report refers to the rum market as consisting essen-
tially of Bacardi.

largely due

to grow,

to a

(98)

It is true that other competitors supply important
brands, some of which have achieved high sales
volumes. For instance, on the merits of their sales
performance, Cutty Sark whisky and Stolichnaya
vodka would not face particular problems in access
to the trade. However, the potential power of those

brands is significantly reduced by the fact that they
are spread out among different suppliers. That frag-
mentation of
the market, as contrasted to the
combined portfolio of GMG, deprives such brands
of their potential portfolio power.

(99) More particularly, a deep portfolio of whiskey
brands, spread out across the various quality and
price segments, confers considerable price flex-
ibility and marketing opportunities. Therefore, the
supplier is shielded from market pressures, as he is
able to face price competition from other suppliers’
brands by positioning and pricing his various
brands within the category. For instance, with its
secure high market performance of the best-selling
whiskey brands, GMG will be able to devote as
many resources as necessary in order to maintain
its secondary brands in their position or to reposi-
tion the weaker brands upwards by expanding their
share at the expense of competing brands, or in

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to counter eventual competitive pressure
order
coming from those brands. The parties have argued
that such ‘pull-through' has not occured in the past
and is accordingly unlikely to occur in the future.
ignores the substantial
However,
increase in the parties’ market shares and resources
that the merger will create.

this argument

(100) Moreover, a wide portfolio of categories confers
major marketing advantages, giving GMG the poss-
ibility of bundling sales or increasing the sales
volume of one category by tying it to the sale of
another category. Both Guinness and GrandMet
have made use of their portfolios of brands in
bundling deals. For instance, in 1995, GrandMet
rewarded customers who collected and delivered
[ . . . ] bottle-caps of Smirnoff, Cuervo and J&B, by
offering them a free [ . . . ]. For the same number of
caps, wholesalers received a credit note of [ . . . ].
Moreover, Guinness made joint promotions of
different categories and brands, whereby customers
purchasing a 12-bottle pack containing Johnnie
Walker Red Label
(7 bottles), Gordon’s gin (2
bottles) and White Horse (3 bottles) obtained a
discount of [ . . . ]. It should be noted that these
promotional campaigns were run with the coopera-
tion of wholesalers who supplied the various trade
channels. Finally,
in 1996 GrandMet carried a
similar discount campaign for wholesalers, offering
discounts for purchases of [ . . . ] cases of a pre-
selected mixture of the following GrandMet brands:
J&B ([ . . . ]), Smirnoff ([ . . . ]), Cuervo ([ . . . ]), Baileys
([ . . . ]), Grand Marnier ([ . . . ]) and Malibu ([ . . . ]).

(101)

In the on-trade, where spirits producers build a
through its
brand’s strength and image, GMG,
broad portfolio of brands, would be able to influ-
ence what products are stocked or displayed in the
limited space available behind the bar,
(the so-
strengthening its
thus
called back-bar),
market power. For small outlets which have smaller
back-bars, or for Greek night-clubs which concen-
trate on whiskey, the combined entity would be an
attractive solution for one-stop-shopping considera-
larger modern outlets, which
tions. In addition,
usually stock a much broader variety of brands,
may also become a target of the combined entity,
should it attempt to gain more back-bar space or

further

use the image of fashionable clubs in order to
launch its brands. GMG could afford to make
substantial offers, discounts and credits or organise
and finance promotional events, that would also
accrue to the outlet itself, and use its strength in
leading brands, such as Johnnie Walker Red Label,
Gordon’s gin and Bacardi rum, in order to induce
bars to list brands in the same or another category.
Given that those premises could not afford not to
stock the brands set out above, the negotiating
power of GMG would be significantly strength-
ened. Therefore, it would be much easier for GMG
to induce bartenders to adopt GMG brands as
pouring brands (that is, the brand offered when a
customer fails to specify a brand by name), thus
increasing their sales volumes and public aware-
ness.

(102)

for

In the off-trade, the elimination of competition
in-store
between Guinness and GrandMet
promotions will serve to enable GMG to plan
jointly the timing of promotions, negotiate jointly
the terms of promotions and coordinate any price
changes. Moreover, through its variety of brands,
GMG could also alternate branded products
promoted over a period of time, thus occupying
long promotion periods and excluding competitors
from access to the promotion calendar for long
periods.

and

and

Serkova

Stolichnaya

(103) By comparison, competitors have weaker portfolios
and fewer strong brands, the most important being
Cutty Sark, accounting for [15-25 %] of whiskey
sales,
vodkas,
accounting for [20-30 %] and [15-25 %] of vodka
sales respectively. As stated in the preceding para-
graphs, although those brands may have performed
well, they lack the support of a strong portfolio of
brands. Indeed, in contrast to the complete GMG
portfolio,
the competitors’
portfolios would deprive them of price flexibility
and make them more vulnerable to market pres-
sures. For example, when their brands start losing
sales volume, they will have to commit dispropor-
tionately stronger resources in order to avoid situ-
ations that could in the long run restrict
their
competitive scope.

the discontinuity of

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4. Other potential competitive constraints

(a) Countervailing buyer power

(104) Such power could come from the trade and in particular the various trade intermediaries
that are, in large part, the immediate customers of the spirits suppliers. In Greece, the
various trade channels comprise wholesalers supplying on-trade and off-trade outlets, and
retailers, including supermarkets, hypermarkets and cash and carry chains. Table 6 illus-
trates the split among the various trade channels, in terms of percentage of traded spirits.

Table 6

Wholesalers

Retailers

Cash and Carry

72 %

23 %

4 %

On-trade
(direct)

1 %

Source: Form CO.

(105) The major wholesalers buy from importers and sell
to small retailers and on-trade outlets in various
areas of Greece. As a result of its investigation, the
Commission concluded that wholesalers would not
be able to exercise countervailing power against the
combined entity for the reasons that follow.

(107) Cash and Carry outlets constitute only a minimal
the market, 4 %, and their possible
portion of
countervailing power is, therefore, not sufficient to
reduce GMG’s power.

(106) The parties said that out of a total of 700 whole-
salers, 40 accounted for some 40 % of all imported
spirits purchases. However, none of
those were
identified as being of a particularly significant size,
whereas the remainder were small. The wholesale
is therefore very fragmented. It follows
channel
that, overall, wholesalers would not be in a position
to exercise countervailing power vis-a-vis
the
combined entity. On the contrary, in view of the
incentives that GMG will be able to offer to them,
in
wholesalers would have an obvious interest
staying on good business
terms with GMG’s
marketing policy. That influence over wholesalers
is particularly important to GMG, since wholesalers
handle almost three quarters of the spirits trade in
Greece. Moreover, since wholesalers are responsible
for the supply of smaller retailers (29 % of their
sales) and on-trade outlets (43 % of their sales),
GMG will be able to take advantage of their access
to those outlets in order to put into practice some
of
strategies,
resulting from its large portfolio of brands, as
described in the previous paragraphs on portfolio.

the marketing and promotional

(108) Retailers, such as supermarkets and smaller liquor
shops handle 23 % of spirits trade in Greece.
Although the big supermarket chains have charac-
teristics enabling them to develop countervailing
power, their replies to the questionnaires indicate
that they have not done so far. On the contrary,
their views suggested that because GMG has the
largest number of best-selling brands and the
broadest portfolio of spirits among the suppliers, it
would be difficult to fulfil their needs, which are
driven by consumer demand, without passing
through GMG. Referring to the combined entity, a
leading buying group in Greece noted that ‘the two
companies combined represent 56 % of all spirits
purchases'. Referring to a number of GMG brands,
in particular Johnnie Walker, Dewar’s, White
Horse, Haig, J&B, Gordon’s, Smirnoff, Baileys and
Grand Marnier, the buying group stated that those
brands ‘stand out on their own and impose them-
selves to the retail trade'. A large retailer, operating
more than 30 supermarkets and hypermarkets,
noted that ‘there are certain brands of these com-
panies which are essential for our stores to stock in
view of their increased demand, such as Johnnie
Walker, Bacardi, Metaxa, Ouzo 12, Dewar’s,
Dimple, etc.' The same retailer considered that the
merger would have an impact at both consumer
and retail level, since the reduction of competition
would be prejudicial for the ultimate consumer.

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(109) Moreover,

have

several

the eight own-label whiskey brands
which
developed
supermarkets
account for a marginal proportion of total whiskey
demand (estimated at around 5 %) and, taking into
account the fact that in general whiskey consumers
are brand-sensitive, own labels are not expected to
put substantial competitive pressure on branded
products.

(110) The parties provided a number of

statements
supplied by customers, which implied that
the
customers concerned did not believe the merger
would have adverse impacts on their business.
However, only limited reliance can be placed on
those statements,
in view of the fact that those
customers have an important commercial relation-
ship with the parties, which asked them to make
the statement.

(111) Moreover, the parties presented a number of exam-
ples of on-trade outlets that had refused to stock
some of Guinness’ brands without payment of a
listing fee. However, those examples were isolated
cases which could not be considered as repres-
entative of the countervailing power of on-trade
outlets. Indeed,
they only concerned a limited
number of on-trade outlets (six) and the delisting
period was relatively short (one to three months).

(b) Parallel trade

(112) While the existence of cross-border sales is indic-
ative of alternative supply sources and therefore of
residual competition, in the case of Greece parallel
trade does not appear to be a significant constraint.
First, the volumes involved are not significant (1).
Second, parallel trade seems to be motivated by
specific circumstances that arise at random when a
quantity of spirits becomes available in another
Member State (usually Spain), or when variations in
exchange rates resulting in cheaper prices favour
this business activity. Moreover, the various whole-
re-
salers,
spondents to the questionnaires were not aware of
the extent of parallel trade, because their compa-
nies did not engage in such trade.

retailers, buying groups

and other

lower

listing fees

preceding paragraphs on GMG’s portfolio power
and foreclosure effects, entry of new products is
likely to become more difficult. Due to its nego-
tiating power stemming from its leading brands,
GMG could afford to negotiate with wholesalers
and retailers
and year-end
bonuses and as a result, in order to maintain the
profitability of
retailers could be
compelled to impose higher listing fees or higher
retail margins on new brands. GMG could also
enter
into exclusive distribution agreements or
impose conditions on various on-trade outlets so as
to make the launch and development of new
brands both more difficult and more costly.

the category,

5. Conclusions on Greece

(114) On the basis of the above, GMG will account for
[45-55 %] of the whiskey market. Coupled with its
broad portfolio of whiskey brands, ranging across
all the various quality and price sub-segments, that
will confer on the combined entity considerable
marketing advantages.

(115) Moreover,

for the reasons set out above, GMG
already has dominant positions in gin [80-90 %],
brandy [70-80 %] and rum [75-85 %] and a very
broad portfolio of brands, including the best-selling
brands across all the spirits categories, with the
exception of vodka, and will have [35-45 %] of
overall spirits consumption in Greece.

(116) Furthermore, existing competitors do not have
such a portfolio of brands that they would be able
to constrain GMG’s market power. In addition, the
various trade channels are not able to exercise
countervailing buyer power. Finally, barriers to
entry are important, preventing thus new entrants
from limiting the power of GMG.

(117) Therefore, for all these reasons, the merger will
result in the creation of a dominant position in the
Greek market for the supply of whiskey.

(118) Finally, through the portfolio effects set out above,
the existing dominant positions in gin, rum and
brandy will be reinforced.

(c) Barriers to entry

(113) As stated above, the entry of new products into a
highly branded and regulated market is a particu-
larly difficult task in Greece, and as a result of the
creation of GMG and for the reasons set out in

B. SPAIN

1. General overview

(1) The parties’ estimates point to a figure of some [5-15 %] of
their total sales between 1995 and 1997 (see ‘Response to the
statement of objections').

(119)

In terms of total spirit sales, Spain is the third
biggest consumer in the Community, with 16,5 %
of total Community sales by volume (1995).

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(120) Table 7 shows the structure of spirits consumption

in Spain.

Table 7

Composition of spirits demand in Spain (1995) by
sales volume and sales values

Volume
(%)

Value
(%)

All whiskey

29,4

32,9

Scotch whisky

20,3

24,9

Gin

Vodka

Other ‘white' spirits

Rum

17,2

10,0

3,4

0,2

7,3

3,5

0,1

11,0

Brandy/Cognac

17,7

17,4

Other

Liqueurs

Source: Form CO.

24,8

25,1

12,2

15,0

(121) Whiskey accounts for the greatest proportion of
spirit sales in Spain with about 30 % market share
by volume or value, about two thirds of which is
accounted for by Scotch, which has been a growing
market. Spain is the fourth largest consumer of
whiskey in the world, after the United States, the
United Kingdom and France.

(122) Brandy/cognac is the second most important spirit,
with a share of about 17 %. Gin comes third with
17 % by volume and 10 % by value and has been
declining. Vodka, although it accounts for a small
part of the market with a share of about 3 %, has
been growing over the last years.

2. Relevant product markets

(123) As explained above,

the point of departure for
product market analysis is the individual spirit
type. In Spain, with regard to whiskey, given that
the parties are not
involved in the supply of
Spanish whiskey, the key issue was whether sep-
arate markets should be defined for Scotch and
Spanish whiskey. The parties claimed that there
was no ground to differentiate between Scotch
whisky and other types of whiskey, in particular,

the locally produced whiskeys, namely DYC and
Doble V (both produced by Allied Domecq).
However, for the reasons set out in the following
paragraphs, the Commission considers that Scotch
whisky and Spanish whiskey are two distinct
markets.

(124) Spanish whiskey does not comply with the distilla-
tion and ageing process requirements imposed on
authentic Scotch whisky. Spanish whiskey is
produced by combining a proportion (usually
30 %) of authentic Scotch with locally produced
grain spirit. Consumers also regard the two prod-
ucts as different due to differences in image (for
example certain Spanish brands have particular
historical associations dating from the time when
international brands were not readily available).
Over the period 1985 to 1995, the growth in Scotch
was twice that of Spanish whiskey. Furthermore,
following the ending of preferential tax treatment
for the local brands, their sales declined, whereas
Scotch consumption generally has risen.

(125) Evidence provided by the parties on the retail
prices per litre of whiskey in Spain in 1996 showed
that the two Spanish whiskeys, DYC and Doble V,
were at the lower end of the price range, and that
only two brands of Scotch ([ . . . ]) were sold more
cheaply (a difference of a few pesetas). In their
response to the statement of objections the parties
said that DYC had been seen in a Spanish super-
market priced considerably above two of the retail-
er’s own-label Scotches, and a few other Scotches
which were not listed on the original price series,
as well as one (William Lawson) which, according
to the price series, was usually considerably more
expensive than either DYC or Doble V. However,
when account was taken of which of the whiskies
in the series were of any significance in Spain from
the viewpoint of market share, it appeared that the
next significant whisky in the price series ([ . . . ])
was more than [5-15 %] more expensive and the
parties’ biggest seller,
[ . . . ], was about [25-35 %]
more expensive again.

(126) The parties also adduced econometric evidence
against the existence of a separate Scotch market in
Spain. They provided quantitative estimates of own
price elasticities to argue that Scotch whisky was
not a separate market from Spanish whiskey. This
was challenged by other parties. The validity of the
results presented can be questioned, since the
quantitative analysis suggests that some systematic
influence is left out (to show up in significant
residual serial correlation of unknown structure),
which may contribute to the elasticity estimates.
Furthermore, despite the importance of whiskey in
the segment expenditure (which was also an ex-
planatory variable), no account was taken when

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isolating the price elasticity of how segment ex-
penditure varied with incremental changes
in
Scotch whisky price. There were therefore a
number of insecure elements in the quantitative
the Commission
results.
concluded that the evidence concerned could not
be said either to confirm or refute the proposition
which it was seeking to prove.

In the circumstances

(127)

In the light of
the Commission
the foregoing,
considers that the relevant markets in Spain for the
purposes of this assessment are Scotch and Spanish
whiskey.

All whiskey

Scotch whisky

Gin

Vodka

Source: Form CO.

3. The market position of the parties

(128) Table 8 below shows the parties’ shares at brand
owner level by main categories of spirits in 1995.

Table 8

(%)

Guinness

GrandMet

GMG

[5-15]

[10-20]

[5-15]

[:2]

[20-30]

[30-40]

[:5]

[35-45]

[30-40]

[45-55]

[5-15]

[35-45]

(129) Spain accounts for about [15-25 %] of Guinness’s sales in the Community and about
[10-20 %] of those of GrandMet. Importation and distribution are carried out by local
wholly owned subsidiaries, Udie SA for Guinness, and Anglo Espa(cid:157)ola Distribuci(cid:155)n for
GrandMet.

(130) Table 9 shows the parties’ market shares in Scotch by brand in volumes terms (1995 data).

Table 9

Guinness

Share

GrandMet

Share

GMG

Johnnie Walker R/L

[:10 %]

J&B Rare

[25-35 %]

[:2 %]

[:2 %]

Dewar’s W/L

[:10 %]

J&B 15year

VAT 69

Bell’s

White Horse

Black & White

Cardhu

[:5 %]

Knockando

[:5 %]

[:2 %]

[:2 %]

[:2 %]

Johnnie Walker B/L

[:2 %]

UD Classic

[:2 %]

Total

[10-20 %]

Total

[25-35 %]

[40-50 %]

Source: IWSR.

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4. Aggregation

(131) The parties will have a strong position in Scotch.
They have [40-50 %] combined market share by
value (40-50 %] by volume) with an increment of
approximately [10-20 %] by value ([10-20 %] by
volume). J&B alone has over [25-35 %].

risks in attempting to trade without being able to
offer those products.

(137)

In addition, one of the important elements for the
exercise of countervailing power, namely a strong
presence of own brand, is missing from the Spanish
market, where such products account for 5 % of
whiskey sales.

5. Competitors

share of

share. The third-placed competitor

(132) Overall, GMG will have more than twice the
its nearest competitor Allied
market
[15-25 %]
Domecq, whose Ballantine’s has
market
is
Seagram’s Passport, with a [< 10 %] share. Those
the share of Allied
shares, and in particular
Domecq, have to be seen against the fact that the
parties have the leading brand which on its own
has
than Allied
share
Domecq’s total share.

significantly

larger

a

a

6. Countervailing power of customers

(133) The parties have provided details of their estimates
of the breakdown of sales by type of customer for
Spain as a whole, and also in terms of their own
sales. For Spain as a whole, they estimate that:
direct sales to on-trade account for only [5-15 %] of
the total; direct sales to off-trade retailers account
for some [20-30 %], and that the balance of [60-
70 %]
is accounted for by sales to wholesalers
including cash and carry outlets. It appears that the
parties’ own split of sales between these channels is
[ . . . ].

(134) The parties claim that countervailing power exists
because the wholesale and direct retail sectors are
concentrated. They provided estimates
showing
that approximately [40-50 %] of their total sales are
made to [ . . . ]
large wholesalers/cash and carry
customers and about another [15-25 %] to hyper-
markets and large supermarket chains. Four hyper-
market chains are said to account for approxim-
ately [55-65 %] of GrandMet’s direct retail sales
(equivalent figures were not available for Guinness.)

(135)

It is to be noted however, that GrandMet sales
through the main hypermarkets represent [5-15 %]
of its total sales, suggesting that the countervailing
power of those customers is limited. At the whole-
sale level, the majority of the parties’ sales appear to
be made to smaller wholesalers, who would not
possess countervailing power.

7. Barriers to entry

in the introductory section of

(138) There was no evidence to suggest that barriers to
entry in Spain in the relevant markets were
substantially different from those to be found in
other European countries, and therefore the general
this
comments
Decision about barriers to entry apply. More specif-
ically, the parties pointed to several whisky brands
which had been introduced into the Spanish
market since 1994. However, the majority of those
brands were owned either by Guinness or by
GrandMet, and the rest by existing competitors,
rather than by genuine new entrants. All of them
were special types of malt or premium whisky,
which could be expected to capture only a small
proportion of the market and which were mainly
an extension of existing product lines rather than
genuinely new products.

(139)

It was noted that, apart from VAT 69 which has
achieved approximately [< 10 %] since its recent
reintroduction, in the 10 years to 1995, only two
brands, Cutty Sark [< 10 %] and Passport [< 10 %],
achieved a material market penetration. Passport is
distributed and promoted by Seagram and has
therefore benefited from that company’s support,
whereas Cutty Sark entered the market through
independent distributorship. The relative scarcity of
successful new entries over the period bears out the
view that new entrants would face significant
barriers.

8. Conclusions on Spain

(140) For the above reasons, the Commission considers
that the concentration will lead to the creation of a
dominant position in the market for Scotch whisky
in Spain.

C. IRELAND

1. General overview

(136) Moreover, it would be harder to exercise any coun-
tervailing power where the supplier has important
leading brands, because any retailer or wholesaler
would be taking substantially increased commercial

(141)

In terms of spirit sales Ireland is the 12th largest
consumer
accounting for
approximately 2 % of sales.

in the Community,

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(142) Table 10 below shows the structure of spirits

consumption in Ireland in 1995.

mature markets would be for all such subsidiaries
to be wholly owned.

Table 10

Composition of spirits demand in Ireland by major
categories and by 1995 sales volumes and values (1)

Volume
(%)

Value
(%)

All whiskey

43,2

44,1

Scotch whisky

9,4

8,7

Irish whiskey

30,5

35,4

Gin

Vodka

Other ‘white' spirits

Rum

8,0

7,6

22,1

20,4

0,3

5,9

0,3

5,8

Brandy/Cognac

10,4

13,1

Other

Liqueurs

10,1

8,3

8,7

6,9

Source: Form CO.

(1) Excluding fortified wines and light aperitifs.

(143)

Irish whiskey, with about one third of sales, is the
most important spirit category, followed by vodka
with about 20 %. Other
important categories
include brandy/cognac and gin.

(144) The situation in Ireland differs from other Euro-
pean countries in a number of ways. Irish whiskey
accounts for 70 % of total whiskey sales whereas
elsewhere Scotch whisky is predominant. All the
leading brands of Irish whiskey are produced by
Irish Distillers Ltd a subsidiary of Pernod Ricard.
The Irish Distiller’s Group distributes [85-95 %] of
the Irish whiskey sold in Ireland and [45-55 %] of
the total spirits.

(145) The distribution system for spirits is unusual, since
two of the four major distributors are jointly owned
by important international spirits producers, and
only one is wholly owned. Normal practice in

(146) The on-trade in Ireland is very dispersed with
scarcely any chains of outlets. The largest chains of
public houses have about 10 outlets. They are
largely supplied by wholesalers. The Irish on-trade
sector is important, and accounts for about 55 % of
total spirits sales.

2. Product market

stable. This

(147) The Commission considers that the markets for
Scotch and Irish whiskeys can be differentiated on
the basis of taste and consumption patterns which
have been remarkably
view is
confirmed by the fact that over [> 95 %] of sales of
Irish whiskey are made at prices higher than the
price of Scotch whiskies, despite the fact that all
Scotch whisky has to be imported. Three brands
are listed by the parties in their reply to an Article
11 letter of 11 July 1997 as being cheaper than
Scotch whiskies: [ . . . ]. Of those, [ . . . ] is not tech-
nically a whiskey but an Irish spirit, since its
alcohol content is much lower than the standard
required of whiskey. The other two brands are not
listed individually in either IWSR or Canadean.
Assuming that those brands account for all of the
parties’ sales of Irish whiskies classified as unidenti-
fied in Canadean,
the maximum sales of both
brands together amount to [ . . . ] cases or about
[< 5 %] of ‘unidentified' Irish whiskey. They do not
therefore significantly affect the definition issue. A
recent decision of the Irish Competition Authority
(Decision No 285 — Irish Distillers Group/Cooley
Distillery of 25 February 1994) also found a sep-
arate Irish whiskey market.

(148)

In relation to products other than whiskey the
conclusion reached in the introductory section of
this Decision applies, namely that
the relevant
product market is no wider than the internationally
recognised main spirit types.

3. Market profile

(149)

In contrast to most other Member States, where the
parties and their major competitors distribute their
products through wholly owned subsidiaries,
in
Ireland many of the leading spirit manufacturers
distribute their products through joint ventures
with competing suppliers. In this situation it is
necessary to consider the distribution level sepa-
rately. Table 11 shows the main brands and their
distributors in Ireland.

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L 288/47

Table 11

Categories and brands of distributors

Market shares by volume 1995

Product

Edward Dillon
(GMG 33,3)

Grants of Ireland
(GMG 49,6)

Gilbeys of Ireland
(GMG 100)

Irish Distillers

(%)

Irish whiskey

Black Bush [:5]
Old Bushmills
[:10]

Tullamore Dew
[:5]

Crested Ten [:5]
Jameson [20-30]
Paddy [15-25]
Powers [35-45]

Stewart’s [:10]
Teacher’s [20-30]

Famous Grouse
[5-15]

Clan Campbell
[:10]

Scotch whisky

Bell’s [:5]
Black and White
[15-25]
Haig [5-15]
J Walker Red
[:5]
Vat 69 [:10]

American whiskey

Jack Daniel’s
[70-80]

Wilde Turkey
[:5]

Gin

Vodka

Rum

Gordon’s [10-20]

Gilbey’s [:10]

Cork [70-80]

Smirnoff [60-70]

Huzzar [20-30]

Bacardi [70-80]

Sea Dog [10-20]

Kiskadee [:5]

Cognac/brandy

Hennessy [80-90]

Courvoisier
[:10]

Martell [:10]

Bisquit [:10]

Liqueurs

Southern
Comfort [10-20]

Carolans [:10]
Irish Mist [5-15]
Tia Maria [5-15]

Baileys [35-45]
Malibu [5-15]
Sheridans [:5]

Bols [:10]

4. Aggregation

(150) The aggregation arises from the fact that GMG would have substantial influence, albeit not
de iure control, over the behaviour of three of the four major spirits distributors in Ireland.
Gilbeys of Ireland (which currently distributes GrandMet spirits) would become a 100 %
subsidiary of GMG. The merged entity would hold 49,6 % of Cantrell & Cochrane (the
remainder of the shares being held by Allied Domecq), which wholly owns the distribution
subsidiary Grants of Ireland, responsible for distributing the spirits products of Allied
Domecq. Finally, Guinness holds 33 % of the shares of Edward Dillon, which principally
distributes Guinness’s spirits products.

(151)

[The parties have argued that Guinness has no control or influence over Cantrell and
Cochrane, and thus over Grants of Ireland and that their share holding is purely financial.
They point out that the presence of three directors on the board of Cantrell and Cochrane
is to protect Guinness’ investment].

(152) However, the views of a shareholder with nearly 50 % of the equity could not realistically
be ignored by the other shareholder, if Guinness, and in future GMG, chose to express
them. Similarly, it is unlikely that Allied Domecq, though the majority shareholder, would

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Official Journal of the European Communities

27. 10. 98

(153)

be able to act in a way which Guinness might perceive as contrary to its interests without
risking the dissolution of the joint venture. Consequently neither party can be said to be
acting independently of the other and thus, as regards this joint venture, they should not
be viewed as competitors. Moreover, it is unlikely that Guinness’s current interest and that
of GMG in the future would be purely financial given that Cantrell & Cochrane not only
distributes spirits but is also involved in the wholesaling of alcoholic and non-alcoholic
beverages and the production and distribution of cider and soft drinks, as are a number of
Guinness subsidiaries.

In relation to Edward Dillon, the parties point to the comfort letter recently issued by the
Commission concerning this operation and the limited powers of the company’s board.
Two factors should be noted in this context, apart from its distribution of Bushmills Irish
whiskey, an arrangement dating from the time when Irish Distillers was a shareholder in
Edward Dillon, the company distributes (with very minor exceptions) only the spirit brands
of its parents. Dillon would be unlikely to take on new products competing with its current
range. Furthermore the situation obtaining at the time of the comfort letter will be
changed by the implementation of the merger, whereby the Guinness and GrandMet
interests in spirits distribution in Ireland would be combined.

Table 12

Volume share by distributors 1995

Edward Dillon
(GMG 33 %)

Grants of
Ireland
(GMG 49,6 %)

Gilbeys of
Ireland
(GMG 100 %)

Total GMG
Influence

Irish Distillers
(100 %)

Top Four
distributors

(%)

Irish whiskey

[:10]

[:5]

—

[5-15]

[85-95]

[;95]

Scotch
whisky

Gin

Vodka

Rum

Brandy/
cognac

Other

Source: IWSR.

[30-40]

[25-35]

[5-15]

[70-80]

[:10]

[70-80]

[10-20]

—

—

—

[:10]

[60-70]

[15-25]

[60-70]

[70-80]

[20-30]

[90-100]

[85-95]

[75-85]

[10-20]

—

[90-100]

[:5]

[90-100]

[80-90]

[:10]

[5-15]

[90-100]

[:10]

[;95]

—

—

[45-55]

[45-55]

[35-45]

[85-95]

(154) Edward Dillon and Grants of Ireland are already
shareholding
associated through the significant
Guinness has in each of
them. The proposed
operation would give rise to aggregations greater
than 5 % in Scotch whisky (total [70-80 %]) and in
brandy/cognac (total [90-100 %]). In addition, the
three undertakings in which GMG would have an
interest would also have very strong combined
positions in vodka [60-70 %] and rum [85-95 %].

distributes other products with significant shares in
other
spirit categories. Therefore, although its
parent company is dominant in the production of
Irish whiskey and has control of most of
the
distribution of that product and of gin, it is not well
placed to compete in other sectors.

5. Competitors

(155) The Irish Distillers distribution operation is strong
in Irish whiskey [85-95 %] and gin [70-80 %] but
with the exception of vodka, where its Huzzar
brand has a [20-30 %] share, it neither owns nor

(156)

In the categories where distributors controlled or
significantly influenced by GMG have very import-
ant market shares, Irish Distillers, the only compet-
itor at this level of distribution, has few brands with
any strength. In Scotch whisky, its Clan Campbell
has only a [< 10 %] share against the [20-30 %] of
Teacher’s, and the [10-20 %] of Black and White.
its Bisquit with
In cognac/brandy and rum,
[< 5 %]
Kiskadee
and
[< 10 %]

with

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L 288/49

are against Hennessy and Bacardi with [75-85 %]
and [80-90 %] respectively. In vodka, its Huzzar
brand has [20-30 %] compared with [60-70 %] for
Smirnoff, but Huzzar has been losing volume faster
than the category in general and much faster than
Smirnoff itself.

would have to rely on using an existing distributor
to provide a route to market for their product. As a
result of the proposed operation, the number of
major distribution channels will be reduced to two,
one under the influence of GMG, the other under
Irish Distillers.

(157)

In Ireland, the multiple grocers have not developed
own brands which might restrain the behaviour of
powerful manufacturers and distributors in the off-
trade. A number of retail chains do have agency
brands, that is a proprietary product which they
distribute exclusively, but those brands account for
less than 5 % of the total off-trade. The recent
acquisition by Tesco of retail grocery chains in
Ireland is unlikely to have any substantial effect in
the short to medium term and will have only a
limited effect in the long term. This is because
Tesco is maintaining the Irish identity of those
stores, so that it cannot simply transfer its UK own
brands to Ireland. Even if it were to do so, the
Tesco brand is not established in Ireland and
would, at least initially, carry little weight.

(158) The on-trade

is more

important

in Ireland,
accounting for about 55 % of spirits consumption,
but the industry is very fragmented and is served by
wholesalers. The countervailing power of
those
wholesalers would constrain the behaviour of
strong distributors. However both Guinness and
Cantrell & Cochrane have wholesaling operations
including spirits which could be used either to
marginalise other wholesalers or to bring pressure
to bear on them, thereby reducing their effective-
ness as a constraint.

(159)

It seems, therefore, that there would not be suffi-
cient constraining power from Irish Distillers in
either the on-trade or the off-trade to counteract
the strength of
the distributors who would be
controlled or significantly influenced by GMG in
the Scotch whisky, and brandy/cognac markets.

6. Barriers to entry

(160)

Ireland is not a densely populated country and has
a large dispersed rural population. New entrants to
the Irish market, who would almost certainly have
a limited range of products, would not be able to
establish their own distribution networks and

7. Conclusions

(161) The proposed operation would have the effect of
reducing to two the number of important indepen-
dent
in Ireland and would
strengthen, through its impact at the distribution
level, the parties’ existing dominant positions in
Scotch whisky and brandy/cognac.

spirits distributors

D. BELGIUM/LUXEMBOURG

1. Product market definition

(a) All whiskey or Scotch

(162) On the basis of the market shares of the parties, the
assessment of the operation would be similar irres-
pective of whether Scotch whisky or all whiskey is
used. Therefore, the assessment below is made on
the basis of all whiskey.

(b) Gin

‘juniper-based spirits',

(163) The question arose as to whether the definition of
gin should include or exclude genever. The parties
argued that genever should be included, pointing
out that the Distillers case (1) had used a definition
of
relying on the classi-
fication of the market in Council Regulation (EEC)
No 2658/87 (2). They also pointed to their own
market research purporting to show that [30-40 %]
of gin drinkers also drink genever and that [20-
30 %] of genever drinkers also drink gin. They also
referred to the ease of supply-side substitutability
between genever and gin, and to the fact that gin
and genever were normally positioned adjacent to
one another on supermarket shelves.

the fact

research,

(164) The fact that there is a ‘juniper-based spirit' defini-
tion in Regulation (EEC) No 2658/87, or that it was
used in an earlier case, does not imply that it is the
appropriate definition to use in the present case. In
relation to the market
that
consumers will drink more than one type of spirit
is not evidence that
the spirits concerned are
substitutes for one another, nor does adjacent posi-
tioning on supermarket
say
anything about whether the spirits concerned are
in the same product market. Moreover, genever is
not normally drunk with a mixer, and is often
drunk as an accompaniment to beer or to coffee. In
this respect it is totally different from the ‘London'
gins supplied by the parties.

shelves of

itself

(1) Commission Decision 85/562/EEC, Case No IV/30.570 —

The Distillers Company,
(2) OJ L 256, 7. 9. 1987, p. 1.

(OJ L 369, 31. 12. 1985, p. 19).

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Official Journal of the European Communities

27. 10. 98

(165)

In addition, the Commission examined retail price
data for gin and genever provided by the parties,
and in particular it compared prices for leading
brands of the two products. Its analysis showed
that, over a recent two and a half year period,
genever prices remained substantially below those
of the gins (a difference of at least BEF [ . . . ] or
approximately [5-15 %] of the bottle price). That
supports the view that genever is not in the same
product market as gin in Belgium/Luxembourg.
Accordingly
in
Belgium/Luxembourg is considered to be the
market for gin, excluding genever.

relevant product market

the

(c) Vodka

(166) There was no evidence to suggest that the appro-
priate product market was any narrower than the
vodka.
internationally
Accordingly the Commission considers the product
market to be vodka.

recognised category

for

Volume
(%)

Value
(%)

19,1

2,7

0,4

3,3

10,7

35,1

3,1

3,1

0,7

3,6

13,8

28,8

(21,3)

(14,9)

Gin

Vodka

Other ‘white' spirits

Rum

Brandy/cognac

Other

Liqueurs

Source: Form CO.

2. General overview

(1) Excluding fortified wines and light aperitifs.

(167) Belgium/Luxembourg accounted for about 2 % of
total spirits sales by volume in the Community in
1995. Table 13 shows the structure of the market.

(168)

Table 13

Composition of spirits demand in Belgium/Luxembourg
by 1995 sales volumes and values (1)

All whiskey

Scotch whisky

Volume
(%)

28,7

27,0

Value
(%)

35,4

32,6

It will be noted that, in terms of its proportion of
overall spirits sales, whiskey is the most important
single spirit category and that some 90 % of
whiskey sales are accounted for by Scotch. Gin and
brandy are also important, but vodka and rum less
so.

3. Position of the parties

(169) Both parties have wholly-owned subsidiaries oper-
ating in Belgium/Luxembourg for the distribution
of their products there.

(170) Table 14 shows

and
combined market shares for all spirits and for
certain spirit categories in Belgium/Luxembourg.

the parties’

individual

The parties’ market shares (by value) by main categories of spirits in 1995

Table 14

Guinness

GrandMet

GMG

(%)

[10-20]

[25-35]

[25-35]

[10-20]

[35-45]

[10-20] (2)

[5-15]

[10-20]

[10-20]

[:10]

[10-20]

[40-50]

[15-25]

[40-50]

[40-50]

[15-25]

[50-60]

[60-70]

All spirits

All whiskey

Scotch whisky

Gin and Genever

Gin (1)

Vodka

Source: Form CO.

(1) Note: the parties provided share figures for gin on the basis of a product market including genever, which they do not

supply. The figure above for gin alone, excludes genever, and is derived from Canadean data.

(2) Agency agreement.

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4. Assessment

(a) Market shares following the merger

(171) As shown by Table 14 above, market shares of
[40-50 %] would arise in an all-whiskey market,
with an increment of
[10-20 %]. The principal
Guinness (UD) brands are Johnnie Walker Red
([10-20 %] share of all whiskey sales by
Label
volume at distribution level
in 1995), Ainslies
([< 10 %]), Haig ([< 10 %]), and Black & White
([< 5 %]) as well as Cardhu, Dimple,
‘Classic' and
VAT 69. GrandMet’s main brand is J&B ([5-15 %]).
In an all-whiskey category, the next largest compet-
itor has a market share of about [5-15 %]; GMG
would therefore be at least five times as big as any
competitor.

(172)

(173)

share,

In gin, according to the Canadean Report, 1996,
Gordon’s (Guinness) is the leading brand with a
followed by Gilbey’s
[35-45 %] market
(GrandMet) with [10-20 %] market
share. By
adding Tanqueray ([< 2 %]) and Bombay Sapphire
([< 2 %]), GMG would have a [50-60 %] combined
market share in gin. The next largest competitor
would be Booths ([< 5 %]) and the rest of
the
competitors would have minor shares well below
[< 5 %]; Bosford [< 5 %];
[< 5 %],
Beefeater
and Burnetts White Satin:
[< 2 %]).

(Silver Top:
[< 2 %];

share

[40-50 %] market

In vodka, the post-merger combined market share
would be over [55-65 %] with a significant incre-
ment arising from Guinness’ distribution of third-
party brands (Wyborowa and Zubrowka) added to
the
of GrandMet’s
Smirnoff. The Commission recognises that if the
distribution arrangements
and
Zubrowka were to end,
the parties have
suggested might happen, there would be no aggre-
gation of market share arising from the operation.
However, in the absence of any undertaking from
the parties to end the agencies, the Commission
must
arrangements will
current
continue. No other competitor has more than a
[< 10 %] market share.

for Wyborowa
as

assume

that

(174) The parties have argued that, notwithstanding those
market shares, there is no case for finding dom-
inance in any of the markets. Their three general
arguments are that there is substantial buyer power,
effective competition from own-label products, and
substantial parallel trade. They observe that their
margins on key products have fallen substantially
in recent years.

(b) Whiskey

(175) The parties contended that powerful purchasers
such as supermarkets were able to exert significant
pressure on spirits suppliers. They contended that
there was a high level of concentration in terms of

their own sales. Figures provided by them showed
that the top five customers of both Guinness and
GrandMet accounted for over [35-45 %] of their
total sales. The parties pointed out that, according
to an IWSR report, over [45-55 %] of whiskey sales
in Belgium were accounted for by large supermar-
kets.

(176)

In terms of buyer power in branded products, the
Commission doubts whether the power of large
buyers such as supermarkets is likely to be suffi-
cient to constrain the parties following the merger.
In whisky, not only will the parties be the largest
supplier with [40-50 %] combined market shares,
compared with the nearest competitor’s share of
below [10-15 %], but the merger would also bring
together the two leading brands, with a combined
share from those two brands alone of [20-30 %].
With brands and shares of that importance relative
to those of competing suppliers,
supermarkets
would be taking substantially increased commercial
risks in attempting to trade without being able to
offer those products.

(177) The parties also contended that own brands were a
significant constraint
in the direct retail sector,
pointing out that own brands (including private
label) accounted for some [25-35 %] to [45-55 %]
of whiskey sales in key Belgian retail chains. In
value terms the share of own label should be
smaller, because it is generally cheaper than the
branded product. The parties’ figures also overstate
the importance of own label in terms of its contri-
bution to spirits sales in Belgium/Luxembourg.
Canadean data suggests
that own label might
account for about [30-40 %] of all whiskey sales in
Belgium.

(178)

In the Commission’s view, the fact that certain
retailers have their own labels will not have more
than a limited effect in constraining the prices for
the parties’ brands, in view of the market shares
they possess. Although the possession of a range of
own brands may strengthen the retailers’ hands in
negotiations it will not sufficiently offset the power
which the parties know they possess through their
control of the supply of leading brands.

(179) Own brands (including private label brands) are
also handicapped in a number of ways. They are
restricted to the outlets of the retailer or supplier in
question and their scope for expansion is thus
limited. The retailer cannot hope to replace alto-
gether branded spirits by his own brands. Any
attempt
to do so would alienate those of his
customers who want to buy specific brands, leading
to the loss not merely of sales of the brands in

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Official Journal of the European Communities

27. 10. 98

question but possibly also of other products which
might have been bought on the same occasion.

(c) Gin

(180) The parties make similar arguments in respect of
gin. The parties observe that own label accounts for
about [25-35 %] of sales in one leading Belgian
retailer, suggesting similar shares in other compar-
able outlets. However the same basic arguments
apply as for whiskey. The combined strength of
own-brand gins appears to be significantly less than
that of the parties’ two brands. In addition the
arguments set out above concerning the restrictions
on the expansion and constraining ability of own
brands of whiskey apply equally to gin.

(d) Vodka

(181) The parties estimate that the shares of own-label
sales of vodka are in the order of [35-45 %] for two
leading Belgian supermarket chains. Once again,
however,
than the share of
Smirnoff. In addition, the arguments set out above
concerning the restrictions on the expansion and
constraining ability of own brands of whiskey apply
equally to vodka.

total

that

less

is

5. Conclusions on Belgium/Luxembourg

(182)

In the light of
the Commission
the above,
considers that the merger will create dominance in
the markets for whiskey, gin and vodka.

VI. UNDERTAKINGS

SUBMITTED BY THE

PARTIES

(183)

In order to achieve clearance of
the proposed
concentration, the notifying parties proposed the
following undertakings to be completed within the
divestment period of 15 months or such extended
period as may be approved by the Commission:

‘(i) Parties will divest, within a period of 15
months from the date of
the Decision or
within such extended period as may be
approved by the Commission (together “the
divestment period”) the rights in all EU/EEA/
EFTA Member States, Poland, Hungary, the
Czech Republic, Slovakia, Slovenia, Croatia,
Bosnia, Serbia, and Macedonia (“the territory”)
to the Dewar’s and “Ainslie’s” Scotch whisky
together with such
brands
confidential
information, and related copy-
right and know-how specific to those brands
as is necessary for their satisfactory produc-
tion. In addition, the parties will undertake,
in so far as whisky indispensable to the
blending of the Brands can only be sourced
from distilleries under their ownership,
to
continue to supply such whisky to the

(“the brands”)

concerning the

purchaser, if requested, on reasonable arms’
length commercial terms. In the event of any
dispute
such
whisky, the parties shall refer the matter to be
resolved by arbitration under the Rules of the
London Court of International Arbitration
applying the law of England and Wales.

supply of

(ii) Parties will bring to an end by 31 December
1998 at the latest the brand agency distribu-
tion arrangements for Belgium/Luxembourg
for
“Wyborowa” vodka currently held by
Guinness.

(iii) Parties will within the divestment period:

either:

(a)

[ . . . ].

or

(b)

[ . . . ]

[Dispose of certain interests in Ireland in
order to ensure continued competition in the
distribution of spirits after the formation of
GMG brands which otherwise would have
effectively reduced the number of distributors
in Ireland from four to two.]

arms’

on reasonable

an independent

(iv) The parties will, within the divestment
period, entrust, for a period not less than nine
the distribution of Gilbey’s gin in
years,
third-party
Belgium to
distributor
length
commercial terms. If such a distributor shall
not be appointed within the divestment
period, the parties will appoint an independ-
ent trustee (who shall be the same as that
appointed in relation to the brands and the
shareholding) who shall be mandated to
appoint such a distributor on the best avail-
able terms and conditions and in any event
by 30 June 1999.

(v) Parties will, within the divestment period,
discontinue the brand agency distribution
arrangement
rum in Greece
currently held by Guinness.

for Bacardi

Mechanisms for divestment

(vi) The parties will

than four weeks, propose

immediately following the
date of the Decision, and in any event, not
to the
later
Commission for its approval the names of
two institutions whom they consider appro-
priate to be appointed as trustees to act on
GMG Brands’ behalf, following its formation,
in overseeing the divestment of the brands
and [ . . . ]. The Commission shall not, without
good cause, withhold its approval of any
trustee proposed by the parties.

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Official Journal of the European Communities

L 288/53

(vii) The parties will, as soon as possible after
receiving the Commission’s approval of the
proposed trustee, appoint such trustee (“the
trustee”) to act from the date of formation of
GMG Brands on its behalf in overseeing the
divestment of the brands and [ . . . ] share-
holding for full and fair market value during
the divestment period. Such appointment
shall be made, subject as more fully described
below, on an irrevocable basis save only in the
circumstances that Grand Metropolitan and/
or Guinness
the
proposed merger has been abandoned in
which case
shall be
deemed automatically revoked.

such appointment

should announce

that

(viii) Pending divestment of the brands, the parties
shall act, and shall instruct the trustee to act,
so as to ensure the continued viability and
market value of the brands and their rapid
and effective divestiture from the rest of
GMG Brands’
fully
activities,
described below.

as more

(ix) The parties undertake that they will give the
trustee a mandate to find on behalf of GMG
Brands a satisfactory purchaser or purchasers
(subject to (xi)(b)
for the brands and [ . . . ]
below),
such
it being understood that
purchaser or purchasers shall be a viable
existing or prospective competitor independ-
ent of, and unconnected to Guinness or
Grand Metropolitan and possessing the finan-
cial resources and proven expertise enabling
to maintain and develop the divested
it
brands and/or
shareholding as an active
competitive force in competition to the
various
spirits business on the
parties’
markets
purchaser
standards”).

concerned

(“the

(x)

[ . . . ]. Should any of the divestitures not be
effected within the divestment period, such
divestitures must in any event be the subject
of a binding agreement to sell by the end date
agreed with the Commission.

(a)

in

the

divestment

such other

to provide to the Commission written
reports (with a copy to GMG Brands) on a
(or, at the option of the
monthly basis,
Commission at
reasonable
time in the event of significant develop-
ments
process),
concerning relevant developments in its
negotiations with third parties interested
in purchasing the brands [ . . . ], including
the time-frame within which an agree-
ment with interested third parties would
be implemented, and, in particular, suffi-
cient information to enable the Commis-
sion to assess whether each bidder satisfies
the purchaser standards;

(b) to continue negotiations with an inter-
ested third party only if the Commission
does not, within two weeks of receipt of
the Trustee’s report, formally indicate that
it does not approve of
the third party
specifying its reasons;

(c) to receive

remuneration from GMG
Brands on a basis which will provide
incentives for a prompt divestiture.

(xii) The parties undertake that GMG Brands shall
provide the trustee with all reasonable assist-
ance required in carrying out the mandate.

(xiii) If

there

is more

than one prospective
purchaser unopposed by the Commission for
all or any of the brands [ . . . ], GMG Brands
shall be free to select the offer of its choice.'

VII. ASSESSMENT OF THE UNDERTAKINGS

A. WHISKEY

(184) The parties have offered to divest two brands at
European level. Dewar’s is an important
inter-
national brand and the parties’ third most import-
ant one in worldwide sales terms, after Johnnie
Walker and J&B. Ainslie’s currently sells only in
Belgium/Luxembourg but is the third most im-
portant brand in that territory.

(xi) The parties shall ensure that the mandate of
the Trustee includes the following rights and
obligations:

(185) The effect of divestiture on the various whiskey
markets in which the Commission has identified
problems is shown in Table 15.

Table 15

Impact of divestments on combined market shares

Country

Combined market
share

Reduction

Greece — all whiskey

Spain — Scotch whisky

Belgium/Luxembourg — all whiskey

[45-55]

[45-55]

[40-50]

[5-15]

[:10]

[:10]

(%)

Share after
divestment

[35-45]

[40-50]

[35-45]

L 288/54

EN

Official Journal of the European Communities

27. 10. 98

(186) Together

the

sales of

these brands

in the
Community in 1995 were [ . . . ] million nine-litre
cases, or about [< 5 %] of Community consump-
tion by volume. For comparison, sales of Famous
Grouse, the leading Scotch whisky not sold by a
major spirits producer, were [ . . . ] million cases in
1995.

B. VODKA

(187) The termination of

the Wyborowa agency in
the parties’
Belgium/Luxembourg will
market share from [60-70 %]
the
remaining market share being accounted for in its
entirety by GrandMet’s Smirnoff, and remove the
overlap created by the merger.

to [45-55 %],

reduce

C. GIN

(188) The appointment of an independent third-party
distributor for gin in Belgium/Luxembourg would
reduce the parties’ market share for gin from [50-
60 %] to [35-45 %].

D. RUM

in Greece would,
in whisky,

(189) Bacardi accounts for [75-85 %] of rum sales in
the Bacardi agency
Greece. The termination of
together with the
agreement
divestment
reduce significantly the
number of product categories in which the parties
would have significant shares. Although GMG will
continue to hold high market shares in some cat-
egories, notably brandy, its ability to exercise port-
folio power will be satisfactorily restrained, since
whiskey and rum are respectively the first and third
largest spirit categories in Greece.

E. IRELAND

(190) The parties propose the two following alternatives.

Either:

(a)

[ . . . ].

(b)

[ . . . ].

[Which will involve the disposal of certain interests
in Ireland so as to ensure continued competition in
the distribution of spirits.]

(191) Either of these options would satisfactorily address
the competition issues identified in the Commis-
sion’s analysis of the Irish market by substantially
reducing the parties’ influence over the distribution
of their own products and those of others in that
territory. [ . . . ]. [Either alternative will ensure that

the influence of GMG over the distribution of
spirits in Ireland is significantly reduced.]

F. TERMS AND CONDITIONS

(192) The terms and conditions for the various divest-
itures, which are consistent with the practice in
previous such cases, are considered adequate.

(193)

VIII. CONCLUSION

In the light of the foregoing, the Commission has
concluded that the concentration notified by Guin-
ness plc and Grand Metropolitan plc on 16 May
1997, relating to the merger of all their business
activities, should be declared compatible with the
common market and with the functioning of the
EEA Agreement, subject to the condition of full
compliance with the commitments made by the
parties in their undertaking to the Commission as
set out in section VI above,

HAS ADOPTED THIS DECISION:

Article 1

The concentration notified by Guinness plc and Grand
Metropolitan plc, relating to the merger of all their busi-
ness activities, is declared compatible with the common
market and with the functioning of the EEA Agreement,
subject
full compliance with the
commitments made by the parties in their undertaking to
the Commission as set out in section VI of this Decision.

to the condition of

Article 2

This Decision is addressed to:

Guinness plc
39 Portman Square
London W1H 0EE
United Kingdom

and

Grand Metropolitan plc
8 Henrietta Place
London W1M 9AG
United Kingdom.

Done at Brussels, 15 October 1997.

For the Commission

Karel VAN MIERT

Member of the Commission