1999/674/EC: Commission Decision of 3 February 1999 relating to proceedings under Council Regulation (EEC) No 4064/89 (Case No IV/M.1221 - Rewe/Meinl) [notified under document number C(1999) 228] (Text with EEA relevance) (Only the German text is authentic)
Date: 1999-02-03
Institutions: European Commission
Subjects: Germany, application of EU law, competition law, economic concentration, merger control, retail trade

23.10.1999

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Official Journal of the European Communities

L 274/1

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 3 February 1999

relating to proceedings under Council Regulation (EEC) No 4064/89

(Case No IV/M.1221 — Rewe/Meinl)

[notified under document number C(1999) 228]

(Only the German text is authentic)

(Text with EEA relevance)

(1999/674/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

Having regard to the Treaty establishing the European Com-
munity,

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),
amended by Regulation (EC)
No 1310/97 (2), and in particular Article 8(2) thereof,

last

as

On 28 September 1998 the Commission, in accord-
ance with Article 6(1)(c) of the Merger Regulation and
Article 57 of the EEA Agreement, decided to initiate
proceedings in this case.

(3)

The Advisory Committee discussed the draft of this
Decision on 19 January 1999.

Having regard to the Commission’s decision of 28 September
1998 to initiate proceedings in this case,

I. THE PARTIES

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

(4)

Having regard to the opinion of the Advisory Committee on
Concentrations (3),

Whereas:

(1)

On 25 August 1998 REWE Internationale Beteili-
gungsgesellschaft mbH and REWE-Verkaufsgesell-
schaft mbH, both members of the Rewe group, notified
pursuant to Article 4 of Regulation (EEC) No 4064/89
(‘the Merger Regulation’), a proposed operation within
the meaning of Article 3(1)(b) of
that Regulation
whereby they were to acquire the entire share capital
of Julius Meinl AG.

(1) OJ L 395, 30.12.1989, p. 1; corrigendum, OJ L 257, 21.9.1990,

p. 13.

(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ C 306, 23.10.1999.

The Rewe group (‘Rewe’) forms a uniformly directed
group of companies consisting of Rewe-Zentralfinanz
eG and Rewe Zentral AG together with their respective
direct and indirect subsidiaries. Rewe’s activities com-
prise the acquisition, financing and management of
wholesale and retail companies, in particular compani-
es in the food-retailing sector. Most of Rewe’s turnover
is achieved in Germany. Rewe has been active in
Austria since 1996 through its subsidiary BML (‘Billa’).
Billa operates a food-retailing chain of hypermarkets
(Merkur), supermarkets (Billa), smaller self-service out-
lets
(Mondo) and non-
dispensing drugstores (Bipa), and is the market leader
in food retailing.

(Emma), discount

stores

(5)

Julius Meinl AG (‘Meinl’) is a trading group active
almost exclusively in Austria, although a few shops are
operated in Italy. The overall turnover is achieved
mainly through retailing daily consumer goods. Meinl
operates hypermarkets (PamPam), supermarkets (Julius
Meinl and Meinl Gourmet) and discount stores (Jééé).

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II. THE PROJECT

— the distribution market, in which food retailers act

as suppliers to final consumers,

(6)

Rewe proposes to acquire all the shares in Meinl
[...] *. The notified operation encompasses seven Meinl
subsidiaries. A total of 341 shops, including supermar-
kets, discount stores, hypermarkets and a chain of
delicatessens, are to be taken over. The business
activities and subsidiaries of the Julius Meinl Inter-
national AG group and Meinl’s shops in Italy are not
covered by the notified operation.

— the procurement market

in
which retailers act as buyers vis-à-vis producers of
products forming part of the food-retailing trade’s
range.

(‘demand market’),

III. CONCENTRATION

A. DISTRIBUTION MARKET

(7)

The operation constitutes a concentration within the
meaning of Article 3(1)(b) of the Merger Regulation, in
that Rewe is acquiring sole control of Meinl.

1. Relevant product market

(10)

IV. COMMUNITY DIMENSION

(8)

The companies concerned have a combined worldwide
turnover of more than EUR 5 000 million (4) (Rewe:
EUR [...]* million, Meinl: EUR [...]* million) and a
Community-wide turnover of more than EUR 250 mil-
lion (Rewe: EUR [...]* million, Meinl: EUR [...]* million).
The parties do not achieve more than two thirds of
their Community-wide turnover within one and the
same Member State. The operation therefore has a
Community dimension and is not a case of cooperation
under the EEA Agreement.

V. ASSESSMENT UNDER ARTICLE 2 OF THE
MERGER REGULATION

(11)

(9)

The proposed operation will have an impact above all
on the food-retailing trade in Austria. In accordance
with previous Commission decisions (5), a distinction
must in principle be drawn, from the point of view of
possible effects on competition, between two separate
markets in the food-retailing sector:

(*) Parts of this text have been edited to ensure that confidential
information is not disclosed, those parts are enclosed in square
brackets and marked with an asterisk.

(4) The turnovers were calculated in accordance with Article 5(1) of
the Merger Control Regulation and with the Commission notice
on calculation of turnover (OJ C 66, 2.3.1998, p. 25). Where
turnover figures for the period before 1 January 1999 are
mentioned, they were calculated on the basis of the average ECU
exchange rates and converted into ecus on a one-for-one basis.
(5) For example IV/M.803 — Rewe/Billa (OJ C 306, 15.10.1996,

p. 4); IV/M.1071 — Spar/Pro (OJ C 49, 14.2.1998, p. 13).

There are, within the food-retailing trade, various
forms of distribution which differ according to, among
other things, the width and depth of the range carried
and the size of the sales outlet (such as supermarkets
with 5 000 to 10 000 articles, a fresh-food department
and a sales area of 400 to 1 000 m2, and hypermarkets
with a sales area of at least 1 000 m2). Owing to
the existing competitive relationships between these
it will be assumed
different forms of distribution,
below,
previous Commission
in
decisions (6), that there is a separate market in food
retailing which embraces all retailers, and in particular
supermarkets and hypermarkets, carrying a range of
food and non-food products which is typical of
the food-retailing trade (excluding, that is, specialised
outlets such as butchers and bakers).

however,

as

The parties, by contrast, take the view that the relevant
product market comprises all sources of supply of
foodstuffs accessible to consumers, including all types
of local outlet such as, for example, weekly street
markets, farmers’ markets, butcher’s shops, baker’s
shops, petrol stations, ‘bioshops’, etc. (specialised tra-
de). They base this view on an analysis by the
GfK institute (Gesellschaft für Konsumforschung), of
overlap between different forms of distribution for
January to October 1998, according to which,
although supermarkets, for example, reach out to 97 %
of all consumers, 60 % of supermarket customers also
go to the butcher’s, 75 % to the baker’s and 18 % to
the greengrocer’s. A similar proportion of hypermarket
and discount store customers regularly shop at the
butcher’s, baker’s and greengrocer’s. Butcher’s and
baker’s shops cater for 60 % and 72 % of all consumers,
and of these, 98 % also shop at supermarkets, 78 % at
hypermarkets and 85 % at discount stores.

(6) For example Decision 97/277/EG — Kesko/Tuko (OJ L 110,
26.4.1997, p. 53, paragraphs 18 et seq. of the recitals); Rewe/Billa
and Spar/Pro, see footnote 5; IV/M.1303 — Adeg/Edeka, (OJ
C 385, 11.12.1998, p. 5).

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(12)

The Commission investigations have established, how-
ever, that in Austria there are no special features such
as might justify departing from the Commission’s
standard practice. What is more, the market definition
used by the Commission was taken as a basis by the
parties in their notification of the Rewe/Billa merger.

(15)

Since the parties also wish to include petrol-station
shops in the relevant market, it must be pointed out
that the size of the sales area of such shops is on
average only between 40 m2 and 70 m2 and that they
carry only a limited range centred on beverages and
impulse articles. In the case of petrol-station shops,
moreover, there is generally a price differential of some
25 to 30 % compared with the food-retailing trade.
The consumer is prepared, owing in particular to the
more flexible opening hours, to pay higher prices
(50 % more for beverages, for instance). Because of the
disparate reasons for shopping at petrol stations and
at food-retailing outlets, the two distribution channels
are not interchangeable in the eyes of the consumer.
Since the parties wish to include cash-and-carry stores
in the market, it should be pointed out that cash-and-
carry stores form a separate marketing stage which
mainly provides distribution services to small food-
stores, businesses in the service sector, small retail
outlets, the hotel and restaurant trade, etc. Access to
cash-and-carry stores are limited, moreover, to holders
of a special permit (as a rule tradesmen and business
people). In past decisions the Commission has accord-
ingly not included cash-and-carry stores in the food-
retailing trade’s relevant market (7). The parties have
not submitted any arguments which might justify
departing from these precedents.

(16)

The results of the Commission’s enquiries show that
limiting the market to sales outlets which carry the
typical range of the food-retailing trade is also appro-
priate in this case. The competitors who were surveyed
all stated that specialised outlets, petrol-station shops
and cash-and-carry stores are not in direct competition
with food retailers. The market share data for Austria
in the statistical yearbook of AC Nielsen are also
based on the food-retailing trade market minus the
specialised trade, petrol-station shops and cash-and-
carry stores. The same goes for the study by Regioplan
of the food-retailing trade in Austria.

(17)

The question whether discount stores are to be
included in the relevant market in this case for purposes
of the competitive assessment of the proposed oper-
ation can remain open. The average number of articles
stocked by discount stores in Austria is very small
compared with supermarkets. And the poorer service
and critical lack of branded goods point to there being

(7) See Footnote 6, Kesko/Tuko, paragraphs 24 et seq. of the recitals.

(13)

(14)

As in other Community countries, consumers in
Austria expect from the food-retailing trade a specific
distribution service, consisting in the supply of a
particular range of food and non-food articles. From
the Austrian consumer’s point of view, also, shopping
at specialised outlets such as butcher’s and baker’s
shops is not interchangeable with the broader experi-
ence of shopping at a supermarket or other type of
food-retailing outlet where he can find all the goods he
needs on the spot (one-stop shopping). According to a
survey by the GfK (household panel), a total turnover
of some ATS 11,7 billion is achieved in the space of a
month in perishable consumer goods throughout
Austria, only 10 % of which is accounted for by
the specialised trade. The specialised trade typically
supplies only a particular product or category of
product and, in terms of product type, sales area and
average price, is not in direct competition with the
food-retailing trade in its various guises. Supplies by
the specialised trade therefore serve first and foremost
to supplement supplies by the food-retailing trade.

The parties’ data do no more than indicate that, besides
shopping at a supermarket or other food-retailing
outlet, the consumers surveyed also go to butcher’s or
baker’s shops. From the parallel purchasing behaviour
as thus measured, it cannot, however, be determined
whether consumers go to specialised outlets instead of,
or in addition to, food-retailing outlets. The overlap
analysis submitted by the parties is not
therefore
capable of proving that there is any interchangeability
between the food-retailing trade and the specialised
trade. On the contrary, the figures suggest that special-
ised outlets are no substitute for food-retailing outlets.
This can be seen form the fact that 98 % of the
specialised trade’s customers also shop at supermar-
kets, coupled with the fact that supermarkets cover
97 % of all consumers.
If specialised outlets were
capable of satisfying consumer needs in the same way
as food-retailing outlets, then a much smaller number
of customers of the specialised trade could be expected
to shop additionally at food-retailing outlets.

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(18)

only a limited competitive relationship (8). In the last
analysis, however, the question can be left undecided,
as even if discount stores were included in the relevant
the present
market
operation would be the same.

the competitive assessment of

2. Relevant geographic market

The Commission has already considered the question
of the definition of the relevant geographic market in
the Rewe/Billa decision (9), where it found that, from
the direct viewpoint of the consumer, the geographic
markets affected by a concentration in the food-
retailing trade are the local markets in which the firms
involved run shops. These local markets can be defined
as a circle with a radius of approximately 20 minutes
by car centred on the individual sales outlet. The
Commission has, however, also stated in this connec-
tion that an examination limited to such local markets
would not reflect the competitive impact of a concen-
tration in the food-retailing trade, at least not where
a large number of
local markets affected by the
concentration are connected in such a way as to
overlap and seamlessly cover a larger area or even a
whole Member State.
It must be borne in mind
in particular here that the competitive relationships
between major retail chains are not limited to local
competition but rather exist in a far wider geographical
dimension. This is clear, for example, from the fact
that in the case of major retail chains the range of
goods carried is to a large extent centrally controlled,
and hence at least as far as the basic range is concerned
is the same in every local market, and that nationwide
advertising is the norm. For the competitive assessment
of the Rewe/Billa proposal the Commission,
in its
decision of that time, proceeded in this respect on the
basis that the food-retailing trade in Austria formed an
overall market. It found in this connection that a study
of local or regional markets was unnecessary, if only
because Rewe had not been active in Austria before
and hence there could be no question of any additional
market share in any conceivable geographic market.

(19)

In this case, the Commission’s investigations have
revealed nothing that might justify a regional market
delimitation. The sales outlets both of Rewe/Billa and
of Meinl cover the whole inhabitable part of Austria.
The same goes for their Austria-wide competitors Spar,
ADEG and Löwa. Spar, on the one hand, and Rewe/Billa
and Meinl, on the other, have, it is true, historically
different regional centres of gravity. While Spar has

(8) IV/M.179 — Spar/Dansk Supermarked (OJ C 29, 6.2.1992, p. 18).
(9) Rewe/Billa, see footnote 5.

a stronger presence in western Austria, Rewe/Billa
occupies, as is explained in greater detail in recitals 31
to 36, a strong position in eastern Austria. This fact
does not, however, in itself justify creating regional
markets for geographic market delimitation purposes.
All three firms are present in every Austrian province
and hence throughout Austria. The competitors surv-
eyed by the Commission have confirmed, moreover,
that in each case they carry an identical or similar core
range throughout Austria and that they advertise their
products country-wide on national television and in
the national press. Furthermore, the Commission has
established that prices do not differ appreciably from
one part of Austria to another, especially as between
western Austria and eastern Austria.

(20)

The parties have also submitted that the market is to
be delimited nationally and comprises the whole of
Austria. For the above reasons, the Commission will
now proceed, for purposes of the competitive assess-
the
ment of
food-retailing market in Austria constitutes an overall
market.

the operation, on the premise that

3. Competitive assessment

(21)

It is to be assumed that the operation will lead to the
creation of a dominant position on the part of
Rewe/Billa/Meinl in the Austrian food-retailing market.

(a) Competitive assessment

(22)

(aa) Rewe/Billa is already the leading supplier
in the
Austrian food-retailing trade, having strengthened its market
position in recent years. Austria is one of the European
countries with the highest levels of concentration in
the food-retailing trade. The five largest firms together
control over 80 % of the market, with the top two
alone accounting for nearly 60 %. With the exception
of Finland, this is the highest concentration in the EU.

(23)

The following firms are active in the Austrian food-
retailing market:

Rewe/Billa, a centrally managed chain-store company,
has over 1 071 shops across the whole of Austria,
including 66 hypermarkets (Merkur), 809 supermar-
kets (Billa), 28 smaller self-service outlets (Emma) and
168 discount stores (Mondo). Meinl, also a chain-store
company, operates 40 hypermarkets (PamPam), 274
supermarkets (Julius Meinl), 20 Meinl Gourmet super-
markets and nine discount stores (Jééé). Meinl currently
belongs to the ZEV-Markant purchasing association,
but it will leave it after the operation. The Spar group

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is likewise active throughout Austria, with 1 560shops,
1 103 of which are, however, operated by independent
retailers. The next largest countrywide competitor,
ADEG, has a cooperative structure. ADEG has 1 246
shops throughout Austria, very few of which, however,
it owns itself. Löwa, a member of the Tengelmann
group, has 285 shops across Austria. The Aldi-owned
chain of discount stores, Hofer, is also active through-
out Austria with 199 outlets. Apart from these firms,
only regionally active competitpors ( such as M-Preis,
Tirol, and Pfeiffer, Linz) are present.

(29)

(24)

The Commission’s investigations have revealed the
following breakdown of market shares in the Austrian
food-retailing market, varying according to whether or
not discount stores are included in the market:

Firm

Market share
with discount
stores

Market share
without
discount stores

(30)

(%)

Rewe/Billa

[27 to 33]*

[33 to 38]*

Meinl

Spar

ADEG

Hofer

Löwa

Others

[5 to 10]*

[5 to 10]*

[23 to 28]*

[27 to 32]*

[8 to 13]*

[10 to 15]*

[< 15]*

[< 10]*

[< 10]*

[< 10]*

[< 10]*

(31)

(25)

(26)

(27)

The market shares worked out by the Commission are
based on turnover figures which the Commission has
itself ascertained and do not differ much from the data
set out in the statistical yearbook of AC Nielsen (for
the food-retailing market minus discount stores), a GfK
study, a market survey by M+M Eurodata and a study
by Regioplan.

In their notification the parties claim considerably
smaller market shares (Rewe/Billa [...]* %, Meinl [...]*%).
These market shares are based, however, on the parties’
market definition, which the Commission regards as
incorrect (see recitals 10 to 17).

Since the takeover of the Billa group by Rewe in 1996,
Billa’s market share (including discount stores) has
increased from 25 % to approximately 30 % now. This
is due to above-average domestic growth (opening of
an average of 50 new shops a year, (more than 50) in
1997 alone).

(28)

(bb) As a result of the operation Rewe-Billa will increase its
market share yet again by a considerable amount, and in so
further widen the gap between it and its
doing will

competitors. Rewe/Billa’s market share will increase as a
result of the operation from approximately [27 to
33]*% (including discount stores) to approximately [32
to 43]*%, or without discount stores from [33 to
38]*% to [38 to 48]*%. The number of shops will
increase by one third from 1 071 to 1 414. The total
sales area will increase by at least 30 %.

The closest competitor, Spar, has by contrast an
approximately [9 to 15]*% smaller market share.
Although after the operation Spar will have all told, a
slightly larger sales area than the parties, the turnover
per square metre of sales area achieved by Rewe/Billa
is a great deal higher than that of the other competitors
(see below). Moreover, in the key region of eastern
Austria, where the parties are particularly strong, Spar
is distinctly less well represented than the Austrian
average. Even before the operation, Spar had only
about one-third of Rewe/Billa’s market share there.

Following the merger, Rewe/Billa/Meinl will have a
market share advantage over all other competitors of
at
least 25 %. Although ADEG possesses a large
number of shops, a substantial proportion of them are
small foodstores (up to 150 m2).

(b) Specific strengths of the parties

(aa) Rewe/Billa and Meinl are by far the leading suppliers
in the key regions of eastern Austria (Vienna, Lower Austria,
northern Burgenland). The Commission’s investigations
have revealed the following market share breakdown
for eastern Austria and Vienna:

Firm

Vienna

Eastern Austria

(%)

Rewe/Billa

[47 to 53]*

[42 to 47]*

Meinl

Spar

Löwa

Others

[13 to 18]*

[7 to 12]*

[8 to 13]*

[15 to 20]*

[< 15]*

[< 15]*

[< 10]*

[< 20]*

The above figures do not include the Hofer discount
chain. If it were included, the market shares would not
be significantly smaller.

(32)

Eastern Austria may be regarded as the key region of
the Austrian food trade. In eastern Austria, which
makes up less than a quarter of the country’s surface
area, the high population density means that, with over
40 % of all Austrian sales outlets, 41 % of
total
food-retailing trade turnover in Austria is achieved

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(33)

there. Within the eastern Austrian region, the federal
capital Vienna is of particular importance to the retail
food trade. According to Nielsen, the Viennese have by
far the highest purchasing power in Austria (10). This is
clear, inter alia, from the turnover achieved in Vienna.

In eastern Austria Rewe/Billa/Meinl will have almost
four times the market share of its closest competitor,
Spar, and almost three times as many shops. What is
more, Spar has achieved this market share only by
taking over former outlets of the Konsum retail chain
in 1995. Before that, Spar’s market share was only
about 5 %. Following Meinl’s departure from ZEV-
Markant (11), the latter will no longer be present in
Vienna and will have only a minor presence in the rest
of eastern Austria. Löwa has only [< 150]* shops in
Vienna,
including a mere seven hypermarkets and
38 supermarkets, compared with Rewe/Billa/Meinl’s
total of [< 500]* shops, including 277 supermarkets
and 60 hypermarkets. This large number of shops
which Rewe/Billa/Meinl will have at its disposal after
the operation will give the firm a decisive competitive
advantage inasmuch as, according to the competitors
surveyed and the authorities, there are, in Vienna and
eastern Austria, only a few sites available for new
outlets. The parties rejoin that in Vienna the total
operational floor space limit is, at 2 500 m2, by far the
highest and that there are therefore no substantial
barriers to market entry in Vienna. The fact that in
Vienna the relevant regulations permit a larger overall
operational floor space than in other provinces merely
implies, however, that, for physical planning and legal
reasons,
floor spaces are more
justified in a city with over a million inhabitants than
in small or medium-sized towns or in rural areas. It
cannot lead to the provision of any extra floor space
for new shops.

larger operational

(34)

The exceptionally strong position which Rewe/Billa
will occupy after the operation in Austria and especially
in Vienna will have a considerable impact on Rewe/Bil-
la’s market position in the Austria market as a whole.
If Rewe/Billa clearly dominates a region of Austria
which is by far the biggest in terms of turnover, the
firm will be able to earn increased profits from its
activities there. This is especially true of Vienna, where
Rewe/Billa/Meinl will, with a total of some 475 shops
and a 65 to 70 % market share, rising to over 80 % in
eight of
face hardly any
competition worth mentioning. The advantages of this
dominant position in eastern Austria are therefore
likely to provide the firm with additional resources
compared with its competitors which can be employed
by the firm in areas where its market share is relatively
low. The dominant position in eastern Austria accord-
ingly affords Rewe/Billa additional scope for further

the capital’s 23 districts,

(35)

(36)

(37)

squeezing its competitors in other regions and hence
also for further consolidating its own market position
in those regions as well.

In the opinion of consumer representatives, consumer
choice between different suppliers in the food-retailing
trade providing a comparable service is already restric-
ted by the high density of the Rewe/Billa shop network
in eastern Austria and especially in Vienna. At present
there is, however, still some competition, above all
between Meinl and Billa shops. The consumer
representatives consider that, after the operation, there
will be the prospect, not only of a less varied range of
goods on the shelves owing to Meinl’s becoming a
carbon copy of Billa, but also of a substantial limitation,
if not total exclusion, of consumer choice.

The parties rejoin that Spar is the market leader in five
out of nine Austrian provinces and that, at 64 %, it has
a market share in Vorarlberg which is far bigger
than Rewe/Billa’s market shares in eastern Austria.
Moreover, Spar has, they say, a market share of 100 %
in many rural areas of Austria because it operates the
only food shop in the district. The latter argument is
irrelevant as the competitive assessment is based, not
on individual local markets, but on the overall market
of the food-retailing trade in Austria. As to Spar’s
market share in Vorarlberg as referred to by the parties,
it should be pointed out that, at fewer than 350 000,
the population of Voralberg is only about a 10th of
the key region of eastern Austria. Spar’s
that of
relatively high market share in Vorarlberg accordingly
does not confer on that firm anything like the same
strength as that which Rewe/Billa possesses as a result
of its strong position in the key region of eastern
Austria.

(bb) Compared with their
competitors, Rewe/Billa and
Meinl have a particularly well developed network of highly
productive, large shops. Whereas the number of shops
engaged in the Austrian food-retailing trade has fallen
by half over the last 30 years, the number of supermar-
kets (400 to 999 m2), and in particular of hypermarkets
(> 1 000 m2), has grown considerably (from 706 in
1980 to 1 907 in 1995). This corresponds to an
increase in their share of the total number of shops
from 5,3 % to 24 %. The share of turnover accounted
for by supermarkets and hypermarkets is as high as
66 % of which approximately 27 percentage points
are accounted for by hypermarkets (12). The growing
competitive importance of large shops is due primarily
to consumers’ changing shopping habits (weekly shop-
ping trips, each covering a month’s needs) and

(10) See AC Nielsen, Statistical yearbook 1998 Austria, p. 37.
(11) Meinl is by far the largest member of ZEV, accounting for some

two thirds of ZEV’s procurement volume.

(12) See AC Nielsen, Statistical yearbook1998 Austria, p. 46.

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increased urbanisation of the population. A further
factor is the ever-greater variety of goods on offer by
the food-retailing trade, which necessitates adequate
storage and shelf space. Large shops are prima facie
placed at an advantage by this.

Rewe/Billa has a particularly strong presence in conur-
bations. As a result of the operation, the density of
Rewe/Billa shops in such areas will be further increased.
This holds true, for instance, for seven of the nine
provincial capitals, where more than 210 (that is to
say, over 60 %) of the Meinl shops to be taken over are
situated.

Even before the operation takes place, Rewe/Billa
controls far more hypermarkets (Merkur, 66 in all)
than its largest competitor Spar (44 Interspar shops).
As a result of the operation the gap will become
even wider, as Rewe/Billa will take over 40 PamPam
hypermarkets from Meinl. Löwa controls 17 Magnet
shops, and ADEG 47 Contra hypermarkets (13). Hofer
does not have any hypermarkets.

(43)

(38)

(39)

(40)

Compared with its competitors (apart from the Hofer
discount chain, which is not altogether comparable),
Rewe/Billa already achieves on average for all forms of
turnover per square metre
marketing the highest
(Rewe/Billa ATS 86 000, Meinl ATS 53 000, Spar
ATS 54 000, ADEG ATS 60 000, Löwa ATS 45 000).
Hypermarkets achieve a particularly high turnover per
square metre. Rewe/Billa achieves in its Merkur shops
by far the highest
turnover per square metre, at
ATS 103 700. Interspar shops, on the other hand,
achieve only ATS 56 235/m2, and Magnet shops
ATS 86 700m2. PamPam’s turnover per square metre
is, however, only ATS 44 000 (14).

The parties contend that, because Interspar shops have
larger sales areas, Spar carries a much wider range in
those shops than do Rewe/Billa’s Merkur shops. Spar
is, they claim, able to subsidise the food sector through
the better conditions obtained in the non-food sector.
If this argument is correct and Spar actually enjoys
is hard to
considerable competitive advantages,
understand why, as indicated above, the productivity
per unit area of Merkur shops is almost twice as high
as that of Interspar shops.

it

(41)

As a result of
the operation, Rewe/Billa’s already
considerable lead over its competitors in terms of
number of hypermarkets will increase even further.

(42)

(cc) Compared with their competitors, Rewe/Billa and Meinl
occupy a strong position in conurbations and have especially
favourable locations, which they can use flexibly thanks to
the Bipa drugstore chain. The Commission’s investi-
gations have shown that, even before the operation,

(13) See market survey, Der Lebensmittelhandel

RegioPlan Consulting, p. 90.

(14) See market survey, Der Lebensmittelhandel

RegioPlan Consulting, p. 49.

in O¨ sterreich1998,

in O¨ sterreich1998,

Like the dominant position in eastern Austria and
Vienna, this concentration on conurbations streng-
thens the position of Rewe/Billa/Meinl in the Austrian
market as a whole. It must be borne in mind in
particular here that
in conurbations the turnover
achieved in the food-retailing trade is higher than the
purchasing power of the population resident there as,
in such areas, commuters living elsewhere purchase
considerable quantities of daily consumer goods. A
food-retailer in a conurbation likewise enjoys consider-
able advantages from a logistical point of view in that
it can supply a correspondingly large number of outlets
there. This holds true despite the drawbacks inherent
in delivering goods in conurbations, such as high traffic
density and officially regulated delivery times. These
drawbacks lead to a substantial increase in the logistical
costs of food retailers who have only a relatively sparse
distribution network in conurbations. Bearing in mind,
moreover, that
the competitors of Rewe/Billa and
Meinl have distribution networks which extend for a
large part to rural areas and even to remote Alpine
valleys, it can be assumed that their logistical costs are
on the whole much higher than those of Rewe/Billa/
Meinl.

(44)

It is already apparent from the sharply above-average
productivity of Billa shops that Billa holds particularly
favourable sites. This is borne out by the findings of the
Commission’s investigations and by what competitors
say. The favourable location of a site is one of
the essential parameters of a food retailer’s market
position. This holds true all the more as, owing to
restrictive official authorisation practices, few new sites
are available for food-retailing outlets. Especially in
favourable city-centre locations, but also in outlying
areas suited to hypermarkets, the construction of new
outlets is subject to tight restrictions.

(45)

A site may be considered favourable, inter alia, where it
is centrally located (such as in an inner-city shopping
street) or where it is located in a shopping centre or
specialised supermarket centre easily accessible by car.
The attractiveness of shopping centres lies in their
broad mix of businesses offering customers a wide
range of goods under one roof, often combined with
eating, sports and leisure facilities (‘shopping as an
enjoyable experience’). Specialised supermarket centres

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23.10.1999

are to be found mainly on the outskirts of small towns
with their own catchment area, being especially suited
to bulk buying by car-owners.

(49)

(46)

The Commision’s analysis on the basis of the RegioPlan
study shows that, together with Meinl, Rewe/Billa will
have 160 shops in the 181 key locations covered by
the RegioPlan study, of which 66 for Rewe/Billa
and 40 for Meinl. Spar, the closest competitor, has
62 shops in key locations, followed by Hofer with 47
and Löwa with 20, while ADEG has only five shops
and the smaller competitors number 14 altogether.
The 181 key locations consist of the 98 shopping
centres, 63 specialised supermarket centres and 20
inner-city shopping streets covered by the RegioPlan
study. Taking these three types of key location together,
it is clear that, by acquiring Meinl, Rewe/Billa will more
than triple its hitherto weak presence in inner-city
shopping streets in all provincial capitals (apart from
Innsbruck and Bregenz). An analysis of the regional
breakdown in Austria shows that Rewe/Billa/Meinl is
overrepresented in key locations in every province
compared with its average regional presence.

(47)

the
The following table shows,
number of shops in shopping centres, specialised
supermarket centres and inner-city shopping streets,
together with the total number of such shops:

for each retailer,

Firm

Shopping
centres

Special-
ised
super-
market
centres

Inner-city
shopping
streets

Total

Rewe/Billa

Meinl

Rewe/Billa + Meinl

Spar

Hofer

Löwa

ADEG

Others

24

18

46

44

4

5

1

4

34

3

37

17

42

13

4

8

8

19

27

1

1

2

0

2

66

40

106

62

47

20

5

14

(48)

It may be assumed that, after the takeover, Rewe/Billa
will no longer operate all the 343 Meinl shops in
Austria and the approximately 150 Meinl shops in the
Vienna conurbation, as food-retailing outlets. The
necessary restructuring would normally be carried out
by closing or selling off shops, with the result that their
business could be carried on by competitors. But
Rewe/Meinl will, even after Meinl has been restruc-
tured, not necessarily sell the shops on the market,
being able instead to use them, say,
for its Bipa
drugstore chain. The merger will thus prevent Rewe/B-
illa’s competitors from getting their hands on the
shops.

(50)

(51)

(dd) Unlike its main competitors, Rewe/Billa is a centrally
managed chain-store company. As already indicated in
recital 23,
there are in the Austrian food-retailing
trade both pure chain-store companies and hybrid
companies. The latter are mainly voluntary trading
chains and retailers’ purchasing associations, the first
of which operate their own shops, and the second of
which have distribution agreements with independent
retailers. The ratio between the turnover of chain-store
companies, including shops owned by voluntary trad-
ing chains and retailers’ purchasing associations, and
that of independent retailers is approximately 75:25. A
large proportion of the sales outlets of independent
retailers are smaller than 250 m2.

Pure chain-store companies are able to take important
business decisions (e.g. assortment policy, price policy,
advertising campaigns) centrally and implement them
in all affiliated shops immediately. According to sup-
pliers, it takes Rewe/Billa [...]* on average to list or delist
a product, whereas it takes Spar [...]* to reorganise its
range in affiliated points of sale. Moreover, in the case
of all other organisation forms, full compliance by all
affiliated retailers is never to be expected as the owners
of affiliated retail outlets enjoy a much greater measure
of independence than do branch managers of a cen-
trally organised company. It follows that chain-store
companies can react more quickly and more effectively
to competitive challenges.

It is also easier for chain-store companies to introduce
own brands and pursue a purposive own-brand policy
is for less tightly organised food-retailing
than it
chains. Rewe/Billa has at its disposal in several product
categories an above-average proportion of own brands
(see recital 111) and is the only Austrian food retailer
so far to have successfully introduced an own-brand
range in the upper price segment. Own brands can
increase traders’ profitability. The prices of well-known
branded goods are often used by consumers as a
yardstick by which to assess the value-for-money to be
obtained from a particular shop. Traders therefore tend
to price such goods keenly so as to appear in the
consumer’s eyes to be offering good value-for-money.
This leads to somewhat narrow margins for well-
known branded articles. In the case of own brands,
however, the consumer is unable to make any direct
price comparison. This can be used to achieve a higher
margin than in the case of branded goods. Such a

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Official Journal of the European Communities

L 274/9

strategy is particularly easy to implement in the case of
chain-store companies, as the head office has firm
control over all branches.

to squeeze existing competitors in the distribution
market or to oust them completely from the market.

(52)

(53)

(54)

(55)

Both Rewe/Billa and Meinl are straightforward chain-
store companies. Their main competitor Spar, on the
other hand,
is organised to only a relatively small
extent along chain-store lines. Of 1 560 Spar shops,
1 103 are run by independent traders. Rewe/Billa/Meinl
will thus be further consolidating its existing structural
advantages over Spar. Nor is the next-largest competi-
tor ADEG a chain-store company. Although Löwa is
organised along chain store lines and is a subsidiary of
the Tengelmann group, it has market share of only
about [< 10]* %. The only other straightforward chain-
store company, M-Preis, is on the whole active only in
the Tirol.

(ee) As a result of its tie-up with Rewe, Billa has considerable
resources to fall back on. Since 1996 Billa has belonged
to the Rewe group. Rewe is the leading food retailer in
Germany and the third largest in Europe. In 1997 the
Rewe group achieved an aggregate turnover of EUR
[...]* billion. The parties have submitted that Billa has
so far not had to resort to the Rewe group’s financial
the possibility,
resources. This does not rule out
however, that those resources might be placed at Billa’s
disposal. By contrast, Billa’s main competitor, Spar, is
exclusively Austrian and achieves an aggregate turn-
over of the order of EUR [...] billion. Although Hofer
and Löwa are also subsidiaries of international trading
groups with a large turnover, they both have only a
relatively small market share. And although ADEG and
the German Edeka group recently forged ties, the
impact is not the same for both, simply on account of
their cooperative structure.

(ff) The dominant position to which the operation will give
rise in the procurement market will give Rewe/Billa/Meinl a
considerable competitive advantage in the distribution mar-
ket. As will be explained below, the merger will lead to
the creation of a dominant position in a number of
procurement markets which are of decisive importance
to the food-retailing trade. And as will also be explained
below, the position in the procurement market is of
decisive importance as far as the position in the
distribution market is concerned.

The more a food retailer buys in, the more favourable
as a rule are his buying conditions and hence the more
chance he has of gaining a bigger share of
the
distribution market. This leads in turn to a further
strengthening of his purchasing power.
If a firm
acquires a dominant position both in the distribution
market and in the procurement markets, the combi-
nation of these two forms of market power enables it

(c) Future developments

(56)

(57)

(aa) The existing barriers to entry to the Austrian food-
retailing market will be further increased by the merger. The
Austrian food-retailing market is already characterised
by high entry barriers. This hold true especially for
large-surface stores. Firstly, the land-use planning laws
and building regulations of the nine provinces and
the Shopping Centre Order adopted pursuant to the
Federal Trade Regulations make the opening of food-
retailing outlets subject to official authorisation or,
above a certain sales area, to tight restrictions going as
far as a ban on new shops over a certain size. Secondly,
apart from already existing shops, especially in conur-
bations, suitable plots for additional
food-retailing
outlets very rarely become available. Both factors
constitute a considerable barrier to entry to the Austri-
an food-retailing market. Moreover, the Austrian food-
retailing market already has a high level of concen-
tration.

The parties dispute the existence of the above market
entry barriers, pointing out that Rewe/Billa has suc-
ceeded in recent years in opening on average 50 new
shops a year in Austria and in increasing its market
share from 25 % to 30 % through internal growth. This
can be answered firstly by saying that no competitor of
Rewe/Billa has managed to expand as much in terms
of new outlets. Secondly, the new shops were super-
makets and not large-surface stores. Thirdly, as far as
Rewe/Billa’s internal growth in general is concerned,
the parties have themselves stated that many smaller
Billa shops have been closes and replaced by larger
ones. It follows from all this that, compared with its
competitors, Rewe/Billa enjoys strategic advantages
thanks to which it can to some extent offset the
difficulties standing in the way of expansion in the
Austrian market.

(58)

In view of the existing market entry barriers, it is not
surprising that past attempts by foreign firms to enter
the Austrian market have failed. A survey of the past
years shows that even internationally active chains
have been unable to gain entry to the Austrian market
(Denner of Switzerland and Carrefour of France in the
1970s, the German firm Hurler, with Huma, in the
1980s, and Migros of Switzerland in the 1990s). Even
the Tengelmann subsidiary Löwa, which has been
active in Austria since the 1970s, is having difficulty
retaining a foothold in the market. Its market share is

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Official Journal of the European Communities

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still well below 10 %. Before it acquired a stake in
ADEG, Edeka of Germany operated, with moderate
success, only two food-retailing outlets in Austria.
Although the German trading company Lidl is now
becoming active in the Austrian food-retailing market,
its activity has so far been confined to a few shops and
became possible only after many years of trying. Apart
from Rewe in 1996 and the recent entry by Lidl, in the
past 20 years or so there has been no new market
entry by a large trading chain.

As a result of the merger, the level of concentration in
the Austrian food-retailing market will be increased
further by a considerable margin and it will be even
more difficult for newcomers to enter the market in
the future. It cannot therefore be supposed that the
room for manoeuvre of Rewe/Billa/Meinl will be
restricted by potential competition.

(bb) The market position of Rewe/Billa/Meinl achieved
through the merger can be expected to be further enlarged in
the foreseeable future. The total number of shops in the
Austrian food-retailing trade has been falling steadily
for years (between 1996 and 1996 and 1997, for
example, by 3,7 %). Even before the operation is
scheduled to take place, Rewe/Billa is the only supplier
to be expanding rapidly, opening on average 50 new
shops a year on its own resources. The other large
suppliers have, by contrast, been carrying out closures.

(59)

(60)

(61)

If Meinl’s shops are fully integrated into the Rewe/Billa
group, they can be expected to further enlarge their
market position. If after the operation Meinl’s volume
of purchases is combined with the much larger one of
Rewe/Billa, the former Meinl shops will be able to
benefit from more favourable purchasing conditions.

(d) Causality

(62)

In their reply to the Commission’s Statement of
Objections, the sellers submitted that the operation
would not lead to the creation of a dominant position
on the part of Rewe/Billa/Meinl in the Austrian food-
retailing market. In its present form, and given its
present rate of growth and size, Meinl suffered from
major competitive disadvantages vis-à-vis other, much
larger, competitors. If Meinl were to quit the market or
if it had to downsize, the market shares would, owing
to the historical and geographical distribution of
Meinl’s shops, accrue mainly to Rewe/Billa. Nor was
there any less anti-competitive alternative to the sale,
as the only other potential buyer was Spar. Spar
occupied a similar position to Rewe/Billa in terms of
market share in the Austrian market as a whole, was
especially strong in western Austria and had a larger
sales area than Rewe/Billa.

(63)

The Commission acknowledged in the Kali and
Salz/MdK/Treuhand decision (15), which has since been
upheld in this respect by the Court of Justice (16), that a
merger which should normally be considered to lead
to the creation or strengthening of a dominant position
on the part of the acquiring firm can be regarded as
not causing such a position on the market if, even in
the event of the merger’s being prohibited, the acquirer
would inevitably achieve or strengthen a dominant
position. Accordingly, a merger generally is not the
cause of the deterioration of the competitive structure
if it is clear that:

(64)

(65)

— the acquired firm would in the near future be
forced out of the market if not taken over by
another firm,

— the acquiring firm would take over the market
share of the acquired firm if it were forced out of
the market,

— there is no less anti-competitive alternative pur-

chase.

At the same time, the Commission made clear in the
Kali and Salz decision that such a situation occurs only
in exceptional cases. Normally,
there would be a
presumption that an operation which results in the
creation or strengthening of a dominant position is the
cause of this deterioration of the competitive structure.
Consequently, the burden of proving that there is no
causal link lies with the merging firms.

It should be pointed out first of all that, in contrast to
the situation underlying the Kali und Salz decision, in
this case there is no question of the possible forcing of
a whole firm out of the market. The group was split
into two back in 1996 when the sub-group Julius Meinl
Austria Industrie GmbH was formed. This sub-group
includes the production division, which comprises the
firms Julius Meinl Kaffee- und Tee Vertriebs GmbH
(roasted coffee and tea), Julius Meinl Nahrungsmittel-
produktion GmbH (predominantly marmalade, fruit
juice, distillery products and wine),
Julius Meinl
Fleischwerke GmbH (meat and sausages) and Julius
Meinl Grosshandels GmbH (distribution of own-label
products). Julius Meinl Austria Industrie GmbH also
holds 33,3 % of the shares in Meinl Bank AG and all
the shares in Copem Compagnie de Participation
Européenne Meinl BV, which holds 49 % of the shares
in Julius Investment NV. The latter controls Julius Meinl
International AG, which acts as holding company for
the Meinl group’s activities in central and eastern
Europe. The retailing division retained by Meinl there-
fore accounts for only part of the business activities
and subsidiaries of the Meinl group. Meinl’s withdrawal

(15) OJ L 186, 21.7.1994, p. 38, paragraphs 70 et seq. of the recitals.
(16) Judgment of the Court of Justice in Joined Cases C-68/94 and
C-30/95 French Republic and Others v Commission [1998 ECR
I-1375.

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Official Journal of the European Communities

L 274/11

from the Austrian food-retailing market will accord-
ingly take the form of a management decision to
abandon a business activity whose development has
not lived up to the expectations of the firm’s managing
board. In such a case of a ‘failing-division defence’ and
not of a ‘failing-company defence’, the burden of
proving that the defence of lack of causality is valid
must be especially heavy. Otherwise, every merger
involving the sale of an allegedly unprofitable division
could be justified under merger control law by the
seller’s declaring that, without the merger, the division
would cease trading.

(66)

The parties’ submission is not such as to justify
applying the defence of lack of causality. Apart from
the general consideration outlined above, the parties
have done nothing to prove that, in the absence of a
takeover by another firm, Meinl will
in any event
withdraw from the market in the near future. While it
is true that Meinl’s financial situation has deteriorated
in recent years, the parties have not submitted any
evidence to suggest that Meinl is already, or is about to
become, insolvent. It must be assumed, rather, that the
intended divestiture of the Meinl group’s food-retailing
activities in Austria is based on a strategic decision of
the group’s top management. The restructuring of the
Meinl group in 1996 suggests that, with the splitting
of the group into two sub-groups, steps were already
being taken to facilitate the subsequent sale of Meinl’s
food-retailing activities. As is clear from the 1996
annual report,
the loss-making Meinl activities in
Austria were being separated from the profitable,
essentially more highly capitalised and strategically
more important activities, which were being brought
together within the sub-group Julius Meinl Austria
Industrie GmbH. Against
this background, merely
proving that, in its present form and given its present
rate of growth and size Meinl suffers from major
competitive disadvantages vis-à-vis other, much larger,
competitors does not suffice to show why Meinl’s
food-retailing activities must in any circumstances be
terminated.

(67)

In the Commission’s view, the parties’ contention that
Meinl’s market shares will, owing to the historico-
geographical distribution of Meinl shops, accrue mainly
to Rewe/Billa is likewise not valid. The parties them-
selves say in the same breath that Spar is a potential
buyer. On the strength of the parties’ own admission,
it cannot therefore be assumed that Meinl’s market
shares would come what may, accrue to Rewe/Billa.
The competitive situation which would arise with or
without the proposed operation is therefore by no
means the same.

being ineligible owing to its market position, is equally
unsubstantiated. It is clear from the Commission’s
exposition in the Kali and Salz/MdK/Treuhand decision
that the burden of proving that there is no alternative
potential buyer apart from the acquiring firm is, in the
Commission’s opinion, a heavy one. This view has
been upheld by the Court of Justice (17). The parties’
argument does not discharge this burden. The parties
have neither indicated with which potential buyers the
Meinl group has negotiated nor for what reasons the
negotiations failed. In saying that Spar is excluded
from the outset as a less anti-competitive alternative
buyer, the parties have pre-empted the competitive
assessment by the competent competition authority.
In view of the abovementioned differences between
Rewe/Billa and Spar, such a finding is by no means a
foregone conclusion.

(69)

The parties have therefore satisfied none of the Com-
mission’s three tests in the Kali and Salz/MdK/Treuhand
decision for sustaining the defence of lack of causality.
The proposed operation gives rise for this reason also
to the creation of a dominant position on the part of
Rewe/Billa/Meinl in the Austrian food-retailing market.

(e) Conclusion

(70)

For the above reasons, it is to be expected that the
proposed operation will place Rewe/Billa/Meinl in a
dominant position in the food-retailing market
in
Austria.

B. PROCUREMENT MARKET

(71)

The exercise of buyer power which leads to the
securing of a more favourable purchase deal is not to
be considered per se detrimental to the economy as a
whole. Especially where the supplier side is itself highly
concentrated and powerful, buyers are faced with
effective competition in their own selling market and
hence are compelled to pass on any savings to their
own customers, buyer power can prevent monopoly
or oligopoly profits from being earned on the supply
side (18). However, if the powerful buyer himself occu-
pies in his selling market a strong position which is no
longer kept sufficiently in check by the competition,
any savings can no longer be expected to be passed on
to customers.

(68)

The parties’ contention that there is no less anti-
competitive alternative to the sale to Rewe/Billa, Spar

(17) See footnote 15.
(18) See, for example, The welfare consequences of the exercise of buyer
power, study by Paul Dobson, Michael Waterson and Alex Chu
for the Office of Fair Trading, September 1998, p. 17 et seq.

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(72)

(73)

In the retail trade there is a close interdependence
between the distribution market and the procurement
market. Retailers’ shares of the distribution market
determine their procurement volume: the bigger the
retailer’s share of the distribution market, the larger the
procurement volume. And the larger the procurement
volume, the more favourable as a rule are the buying
conditions which the trader obtains from his suppliers.
Favourable buying conditions can in turn be used
in various ways to improve one’s position in the
distribution market (sometimes through internal or
external growth, but also through low-price strategies
targeted at competitors). The improved position in the
distribution market
is itself reflected in a further
improvement in buying conditions, and so on.

The spiral described above leads to ever-higher concen-
tration both in distribution markets and in procure-
ment markets. In the short term, final consumers may
benefit from the process, as there may be a period of
intense (predatory) competition in the distribution
market during which the powerful buyer/trader is
forced to pass on his savings to consumers. But this
will last only until such time as a structure (as in this
case, an individual dominant position) is arrived at in
the distribution market which leads to a clear reduction
in competitive intensity. At this stage, any consider-
ation for the final consumer goes by the board, as he
is left with few alternatives.

(74)

Buyer power also gives a trader considerable influence
over the choice of products which come to market and
hence are obtainable by consumers. Products which
are not bought by a dominant buyer have practically
no chance of reaching the final consumer as the
supplier lacks alternative outlets. Lastly, the dominant
buyer determines the success or otherwise of product
innovations.

1. Relevant product markets

(75)

These markets comprise the sale of daily consumer
goods by producers to customers such as wholesalers
and retailers and other firms.

consumer. True, the products or products-categories
which are typically bought in by a food retailer are not,
as far as the end consumer is concerned,
totally
interchangeable: even so, at a commercial level the
specific distribution service offered by the food-
retailing trade is, as was explained in recital 13, of great
importance to the consumer, and that service entails a
definite range of food and non-food products (‘one-
stop shopping’). The position is different, however,
when it comes to defining procurement markets. Here,
the critical factors are the producers’ flexibility in
changing output and the alternative outlets open to
them. Producers generally produce a single product or
category of products (such as dairy products, bread
and pastries) and are unable to switch readily to
making other products. A dairy producer, for instance,
cannot produce bread and pastries without substantial
investment and additional know-how. It is not possible,
therefore, to speak of a uniform procurement market
for the food-retailing trade. Although the food-retailing
trade exerts demand for a complete range of goods
inasmuch as its customers likewise demand variety (see
recitals 10 et seq.), it cannot obtain this complete range
from one and the same producer. It cannot therefore
be accepted that there is a single procurement market.

(77)

The Commission’s investigations have confirmed that
a market definition broken down by product category
is generally considered meaningful and that a distinc-
tion can be drawn essentially between the following
categories:

— meat and sausages,

— poultry and eggs,

— bread and pastries (fresh and packaged bakers’

wares, excluding frozen ones),

— dairy products (milk, butter, yoghurt, puddings,
fresh milk-bases desserts, all types of cheese),

— fresh fruit and vegetables,

— beer,

— wines and spirits,

— soft drinks (including mineral water),

— hot beverages (coffee and tea),

— confectionery,

— basis foodstuffs (including flour, sugar, noodles,

rice and spices),

(76)

The consisent practice of the Commission and the
approach of the Court of Justice has been to define
the market primarily from the viewpoint of the the

— preserved foods (non-perishable foodstuffs in tins
or other packaging, with the exception of frozen
foods),

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Official Journal of the European Communities

L 274/13

— frozen foods (including ice cream),

— baby foods,

— pet foods,

— body-care products (creams, lotions, etc., the pur-
pose of which is primarily preventive) and cos-
metics (make-up and perfumes),

— detergents, polishes, cleaning products,

— other drugstore products (apart from the above,
medicinal products available over the counter,
health foods, personal hygiene products, and so
on),

— other non-food products normally found in super-
makets (for example, clothing, newspapers and
magazines, entertainment).

Supplier structures also differ between the various
product categories. In the fresh-product sector, and
especially in the case of meat and sausages, dairy
products and bread and pastries, there is a highly
fragmented supplier structure consisting mainly of
small and medium-sized businesses. In the non-food
field (such as detergents, body-care products and pet
foods), on the other hand, large international producers
predominate. The remaining product categories display
a hybrid supplier structure, although it is normally (19)
characterised by a lower level of concentration than
the trader side. Buying-in by the food-retailing trade is
likewise organised as a rule along the lines of the above
product-categories.

As a rule, the food-retailing trade is not the only sales
channel open to producers of retail-food products.
Other possible sales channels are, for example, the
specialised trade, cash-and-carry stores and other
wholesalers, delicatessens, drugstores and the export
trade. Although the importance of the various sales
channels differs depending on the product category
(see table at recital 95), the food-retailing trade is, with
a share of more than 50 %, by far the most important
sales channel for most product categories. The dispar-
ate distribution of the sales channels also militates in
favour of a delimitation of the procurement market
according to product categories.

(78)

(79)

strategies (as in the food-retailing trade and in delica-
tessens), the need for variety of knowledge and contacts
for different distribution channels and different logis-
tics make it difficult to switch between sales channels.
The Commission has information in its possession
which indicates that entry into a new sales channel is
sometimes possible only after lengthy canvassing of
the market. Numerous products (in particular impulse
and branded goods) are expressly designed for direct
sale to final consumers. For such products, there
are, outside the food-retailing trade, few marketing
alternatives (as a rule the specialised trade, for non-food
products the drugstore trade, cash-and-carry stores).
The Commission’s investigations have disclosed that an
immediate, smooth substitution of a lost food-retailing
trade customer by selling through other sales channels
is impossible in most product categories. A change of
sales channel would instead, where it is at all possible,
require considerable investment and adaptation of the
firm’s production and sales organisation and cost
structure. This points to there being, at least in certain
product categories, a pure food-retailing procurement
market.

(81)

The Commission therefore proceeds on the assumption
that
the procurement market may be objectively
subdivided into the abovementioned product categori-
es. This does not rule out the possibility that some of
these markets may have comparable structures and can
be lumped together in the analysis. Moreover, there
are, for the reasons set out above, strong arguments
in favour of subdividing the procurement market
according to sales channels, so that procurement for
the food-retailing trade may constitute a separate
market. This matter does not have to be decided,
however, as competition problems already arise in
procurement markets covering all sales channels.

2. Relevant geographic markets

(80)

It must be borne in mind that from the producer’s
point of view different sales channels are not readily
interchangeable. Different container sizes, get-up and
packaging (for which special machines or other pro-
duction requisites may be needed), different sales

(19) There are a number of exceptions, including very minor product

categories without much importance in Austria, e.g. fish.

(82)

According to the parties, the procurement market is
EEA-wide. Following Austria’s integration into the
EU, both suppliers and retailers have concentrated
increasingly on the European market. This can be seen
from the growth in actual foodstuff exports, especially
to Germany. At the same time, however, the parties
concede that, more than two years after the takeover
of Billa by Rewe, the joint procurement volume of
both firms comes to less than 2 % of
the total
procurement volume of Billa for food and non-food.
The parties point out, moreover, that Austrian brands
and hence Austrian producers are an essential feature

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(85)

of the Rewe/Billa range, there being increased demand
from consumers for Austrian and regional products.
Rewe/Billa therefore works, they argue, very closely
with regional and local suppliers, such as bakeries,
mills, sausage and ham producers and water-bottlers.
In fruit and vegetables, Rewe/Billa attaches great
importance to freshness and hence, owing to the
shorter carrying distances, to Austrian goods. As a
direct result of the takeover of Billa by Rewe, many
customers pay more attention to Austrian quality,
Austrian products being preferred in many instances
to those of international suppliers, precisely because of
their high quality.

(83)

The Commission’s investigations have established that
the procurement markets for all the product categories
referred to below are to be regarded as national. This
is due, first, to consumer preferences for Austrian
products and a product range tailored accordingly.
Secondly, the Austrian food-retailing trade buys pre-
dominantly from Austrian suppliers. According to data
supplied by AC Nielsen, in the product categories (20)of
meat and sausages, dairy products, soft drinks, beer,
bread and pastries, fruit and vegetables and coffee, the
Austrian food-retailing trade obtains more than 80 %
of its supplies from purely national suppliers. Even
where supplies are procured from internationally active
producers (such as branded-goods manufacturers), the
procurement is effected almost exclusively through
their Austrian establishments. Austrian producers
(especially producers of foodstuffs) sell the bulk of
their output in Austria, concentrating on the Austrian
market with its 8 million inhabitants and special
consumption habits. Only 8,4 % of the foodstuffs
produced in Austria are sold abroad.

Even international branded goods in both the food and
the non-food sector are as a rule procured from
Austrian establishments/subsidiaries of the relevant
firms, and are not imported. This is due primarily to
the fact that the food-retailing chains expect from
producers, services such as shelf maintenance and
market research, which can be provided only through
a presence on the spot. This package of products and
services, which is tailored specifically to the Austrian
market, is negotiated by international producers in the
annual rounds of talks with the Austrian food-retailing
trade. An additional pointer to there being a national
procurement market even in international branded
goods is the fact that, especially in the food sector,
international brands are often only collective brands.
The content of the products differs from country to
country according to different tastes. The Commission
has determined, for example, that coffees, prepared
dishes and even pet foods produced for Germany, are,
in spite of identical packaging, not saleable in Austria,
and vice versa. The opening-up of the procurement
market anticipated in the decision of 27 August 1996
in case M.803-Rewe/Billa (21) has yet to manifest itself.
It is also worth noting in this connection that, even
more than two years after the takeover of Billa by
Rewe, the joint procurement volume of both firms,
according to their own estimates, amounts to less than
2 % of the total procurement volume of Billa for food
and non-food. The parties themselves have, moreover,
conceded that buying abroad continues to be difficult
owing to red tape, for example, formal declaration and
packaging.

(86)

Lastly with regard to international branded goods, it is
appropriate to define the geographic markets with
reference to the ability of suppliers to switch to other
means of channelling goods to final consumers (22).
Here, access may be had to the consumer only through
the corresponding distribution channels in Austria, of
which the food-retailing trade is the most important.

(87) Owing to the abovementioned structural peculiarities,
the Commission accordingly proceeds on the basis that
there are national Austrian procurement markets.

(84)

A further pointer to there being Austrian procurement
markets is the existence of higher prices for a number
of, in particular, fresh products in Austria compared
with Germany. According to the notifying parties,
buying Austrian fruit and vegetables costs Billa [...]*%
more than buying comparable goods elsewhere in
Europe. Pork costs ATS [...]* per kilo more in Austria
than the EU average. All told, according to the notifying
parties, the prices of Austrian products are up to 20 %
higher than comparable European market prices.

3. Competitive assessment

(88)

It is to be assumed that the operation will lead to the
creation or strengthening of dominant positions on the
part of Rewe/Billa/Meinl in nine Austrian procurement
markets.

(20) The product categories mentioned here do not correspond fully

to the product categories set out above.

(21) See footnote 5.
(22) See Decision 92/227/EC, footnote 6, recital 37.

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Official Journal of the European Communities

L 274/15

(a) Market structure

(93)

(89)

(90)

(91)

(92)

(aa) In the Austrian procurement markets the supply side is
much less concentrated than the demand side, especially as
far as the food-retailing market as a demander is concerned.
The supply structure differs from one product category
to another. In almost all product categories (with a few
exceptions especially in the non-food sector, such as
pet foods), the producer side is much less concentrated
than the demand side. In the Cash Almanach (23), which,
is the most comprehensive
according to the trade,
catalogue of, among others, foodstuff suppliers in
Austria, on average for all product categories, 22 pro-
ducers are listed per product category. In the product
categories dairy products, meat/sausage and basic
for
foodstuffs,
confectionery, wines/spirits
and preserved foods
around 30 to 40 each, and for beer and bread/pastries
about 20 each (24). A large proportion of the producers
are, moreover, small firms with a turnover of less than
EUR 7 to 8 million.

there an 40 to 50 suppliers each,

The suppliers/producers of dairy products, meat and
sausages, poultry and eggs, bread and pastries and beer
in Austria are, with few exceptions, Austrian firms
which concentrate on the domestic market and which,
when compared with their foreign counterparts, are
small and medium-sized enterprises. A few German
firms (particularly from southern Germany) also supply
the Austrian market. Big international firms are the
exception (in the case of dairy products, for example,
above all Danone, and to a lesser extent KraftJacobsSu-
chard, for which dairy products are more of a sideline).

In the categories confectionery, soft drinks, coffee and
tea, wines and spirits, basic foodstuffs, preserved foods
and frozen foods, international groups (such as Nestlé,
KraftJacobsSuchard, Masterfoods) and Austrian pro-
ducers (such as Inzerdorfer, Felix Austria, Darbo,
Mautner Markhof, Manner) are equally well represented
in each case.

Non-food products especially (body-care products,
cosmetics, personal hygiene products, detergents, pol-
ishes and cleaning products), but also baby foods
and pet foods, are supplied mainly by international
suppliers. In these sectors also there are, however, a
few (fairly small) Austrian producers.

(23) Cash Almanach für Handel, Gewerbe und Industrie ’98, published by
the trade magazine Cash, Manstein Zeitschriften Verlags-
ges.m.b.H, Perchtoldsdorf.

(24) In the case of bread/pastries, small producers producing products
exclusively or almost exclusively for sale in their own bakeries or
as local suppliers to the food-retailing trade are not included.

In the food-retailing trade sales channel, these pro-
ducers stand opposite fewer than 10 food-retailing
chains, of which only five (Rewe/Billa, Meinl, Spar,
ADEG, Löwa) are active throughout Austria. According
to the information in the Commission’s possession,
the buyers in other sales channels are, apart from
cash-and-carry stores, not very highly concentrated.
They are predominantly small and medium-sized enter-
prises, especially in the specialised trade and delica-
tessen sales channels. In the cash-and-carry sector,
Metro is the only buyer in Austria worth mentioning,
but the importance of this sales channel is on the
whole minor (the share across all product categories
being approximately 10 %).
field,
although a few large buyers are present, this sales
channel is also of much lesser importance than the
food-retailing trade (the share across all product catego-
ries being approximately 13 %).

In the export

(94)

(bb) The food-retailing trade is by far the most important
sales channel for the foodstuffs suppliers. The importance
of the various sales channels differs depending on the
product category. The relative importance of each
sales channel to the various product categories as
determined by the Commission’s investigations, based
on the answers of the producers surveyed, weighted
according to their turnover, can be seen from the
following table:

Product category

Food-
retailing
trade
share

Special- Delica-
tessen
ised trade
share
share

Other sales
channels
share

(%)

3

35

6

0,5

5

0

7

0

0

Dairy products

Bread and pastries

Soft drinks

Hot beverages

Basic foodstuffs

Baby foods

Pet foods

Detergents, pol-
ishes and cleaning
products

Body-care prod-
ucts
cos-
and
metics

64

33

50

62

65

31

52

70

40

(1) SDs = specialist drugstores.

3

2

17

19

10

0

0

0

0

30

30

27

18,5

20

69
[of which
66 % SDs (1)]

41
(of which
32 % SDs)

30
(of which
19 % SDs)

60
(of which
44 % SDs)

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(95)

(96)

(97)

These percentages show that,
the product
categories indicated apart from baby foods and body-
care products/cosmetics, the food-retailing trade is the
most important sales channel. The other sales channels
are, by contrast, of far less importance.

for all

The Commission’s investigations have determined that
switching between different sales channels is extremely
difficult. Differences in packaging, get-up and container
size from sales channel to another are a bar to a speedy,
smooth switch-over. More important, however, are
differences in logistics and distribution structures from
one sales channel to another, which place different
demands on a firm. A different vehicle fleet,
for
example, is needed if, instead of having to supply a
few central warehouses for the food-retailing trade,
numerous smaller customers have to be supplied
direct. The number, knowledge and contacts of the
distribution staff also necessarily differ from one
distribution channel to another. And different distri-
bution channels call for different advertising messages
aimed at final consumers.

For these reasons and because of the large role played
by the food-retailing trade in the sale of products in
the above categories in Austria, it follows that a ‘lost’
food-retailing trade customer is as a rule difficult for
producers to replace. The producers surveyed stated
that they could replace without difficulty only small
food-retailing trade customers (accounting on average
for less than 5 % of turnover). Even food-retailing
customers accounting for 5 to 10 % of turnover are,
according to the same source, not easy to replace.
Switching to other sales channels is normally out of
the question owing to the difficulties referred to above.
And the larger producers, both international and
Austrian, especially already have as a rule, attained a
very high degree of distribution through all sales
channels and in particular through all
the major
food retailers. This shows clearly that in Austria the
opportunities for producers to switch to other buyers
are much more limited than the opportunities for
buyers to switch to other producers.

(98)

(cc) Even prior to the merger, Rewe/Billa has the highest
market shares in the procurement markets and will increase
them substantially as a result of the operation. It is difficult
to determine precise market shares in the procurement
market. The Commission asked some 300 foodstuff
manufacturers predominantly in Austria (25), what sha-
re of their turnover was accounted for by Rewe/Billa
and Meinl. On the basis of that survey, producers can
be deemed to achieve on average per product category
with Rewe/Billa and Meinl the percentages of turnover
shown in the following table. The table covers some

200 evaluated answers. The data are based on procure-
ment markets covering all sales channels, although, as
indicated above, there are strong arguments in favour
of there being separate markets for each sales channel.

Product category

Rewe/Billa

Meinl

Rewe +Meinl

Dairy products

[15 to 25]

[< 10]

[25 to 35]

Bread and pastries

[20 to 30]

[< 10]

[30 to 40]

Soft drinks

[20 to 30]

[< 10]

[25 to 35]

Hot beverages

[25 to 35]

[< 10]

[25 to 35]

Basic foodstuffs

[20 to 30]

[< 10]

[25 to 35]

Baby foods

[25 to 35]

[< 5]

[30 to 40]

Pet foods

[25 to 35]

[< 5]

[25 to 35]

Detergents, polishes
and cleaning prod-
ucts

Body-care products
and cosmetics

[20 to 30]

[< 5]

[25 to 35]

[25 to 35]

[< 5]

[30 to 40]

(99)

As a result of the operation, the average shares of
suppliers’ turnover in the stated product categories
accounted for by Rewe/Billa will increase appreciably,
as therefore will the dependence on Rewe/Billa as a
customer. As far as the food sector is concerned, these
product categories account for a share of nearly 40 %
of total turnover in the food-retailing trade and in the
specialised trade (26). Of the three non-food product
categories listed in the table, the two categories deter-
gents/polishes/cleaning products and body-care prod-
ucts/cosmetics belong to the categories with the highest
relative turnover share in the non-food sector. It can
therefore be assumed that these two procurement
markets are of considerable importance.

(100) Apart from these average figures, it must be borne in
mind that a considerable proportion of suppliers are
even more dependent on Rewe/Billa and Meinl than
the averages show. In the case of dairy products, for
example, a good third of suppliers transact more than
[...]*% of their turnover with Rewe/Billa alone. After the
operation, this will be true, assuming that procurement
behaviour does not change, of nearly half of all
suppliers.

(101) The Commission asked producers above what pro-
portion of turnover, with a given customer could not
be switched to other sales channels without difficulty.

(25) Including both Austrian firms and Austrian establishments of
international firms. Producers from other European countries
were also surveyed.

(26) Source: market survey, Der Lebensmittelhandel in O¨ sterreich 1998,

RegioPlan Consulting, pp. 24 et seq.

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It transpired that on average 22 % of turnover is the
figure above which a customer can be replaced only at
the cost of very heavy financial losses, if at all. The
parties have contended that a producer behaving in an
economically realistic manner must be able to with-
stand turnover reductions of up to about 20 %. The
Commission proceeds in this case, having regard
to supplier structures in the indicated procurement
markets and assuming the existence of a dominant
position in the distribution market, on the premise
that the position which Rewe/Billa will occupy in the
procurement markets after the operation takes place
will be of an order of magnitude such that either a
dominant position is created or an existing dominant
position is strengthened.

in view of

say, of one branded goods producer who makes ‘must
carry’/products, as Rewe/Billa and Meinl risk losing
customers if those products are not on their shelves.
the strong
that,
They add, moreover,
preference of Austrians for Austrian products, there is
for the same reason a dependence on Austrian pro-
ducers. The latter argument is not valid, however.
While it may be true that Rewe/Billa and Meinl cannot
do without Austrian products, especially in the fresh
produce sector (such as dairy products and bread), a
dependence on individual suppliers cannot be deduced
from this. The Commission’s investigations have estab-
lished that there are in the fresh produce sector a large
number of Austrian suppliers potentially at the parties’
disposal. If individual suppliers drop out, there are
sufficient alternatives for the parties to turn to.

(102)

It must be borne in mind here firstly that, when they
lose a major customer, producers do not have much in
the way of alternatives. In the food-retailing trade,
especially if the firm concerned is already on the list of
the leading competitor Spar, only small competitors
are left, and they are hardly in a position to take up a
turnover. Switching to other sales
large share of
channels is difficult, costly and,
in the short term
at least, generally impossible. Switching to exports,
mentioned by the parties as an alternative, is likewise
not feasible in the short term. To build up export
markets, an on-the-spot presence and an intensive,
costly canvassing of the market are normally necessary.
The Commission has information in its possession
which indicates that it can take about five years to
attain a satisfactory level of exports, to Germany for
example. The upshot is that already on the supplier
side there is a strong dependence on Rewe/Billa/Meinl,
a dependence which will grow as a result of the merger.

(103) Rewe/Billa and Meinl, on the other hand, are not
dependent on individual suppliers. The leading supplier
to the Rewe group (the Nestlé group) covers, according
to the notification, only about [...]% of the volume of
purchases. In the case of Meinl, the leading supplier
covers approximately [...]% of the volume of purchases.
The result is a much heavier dependence of the supplier
side on Rewe/Billa/Meinl than the other way round.
This
food
retailers (27). Range flexibility in the trade is far greater
than the flexibility of producers in production and
distribution. Hence it is much easier for the trade not
to buy something than it is for the producer not to
produce it. This puts the market share study well and
truly into context.

the norm, moreover, with large

is

In the case of

foodstuffs purchases,

(105) The answer to the question as to the extent to which a
trader is dependent on branded goods producers
depends on what consequences the non-availability of
certain brands has for the trader. What matters here is
how the trader’s customers react to the absence of a
the
product.
duration of a shopping trip is an essential consideration
to customers. One-stop shopping, meaning buying
everything needed from one shop, is preferred. If a
branded product which the customer wants is not
stocked by such an outlet, the risks have to be weighed
up that the customer might: (1) stop shopping or put
off making the purchase till later, (2) go to another
shop to look for the desired article, but otherwise
remain faithful to ‘his’ trader, (3) take his business
elsewhere in the longer term, or (4) buy another
brand (28).

(106) The answer depends first on the importance of the
product to the customer, and secondly on the avail-
ability of alternative sources of supply. In the case of
foodstuffs which are purchased frequently and for
which the convenience of shopping as a rule outweighs
other aspects such as price and quality, the importance
of the product is somewhat slight. This is all the more
true if the customer finds in his shopping environment
almost nothing but outlets of one and the same trader.
It can accordingly be assumed that, in the event of a
delisting of branded goods, the trader suffers less than
the producer, especially since he will usually have more
alternative possibilities open to him (29).

(104) The parties argue, by contrast, that they, for their part,
are dependent on certain producers. This is true, they

(27) See the interim report by Dobson Consulting for the study, Buyer
power and its impact on competition in the food-retailing distribution
sector of the European Union, p. 27.

(28) OECD background paper ‘Round table on buying power’, 1998,

pp. 9 et seq.

(29) OECD background paper, pp. 11 et seq.

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(b) The parties’ particular strengths

(107)

(aa) Rewe/Billa has structural competitive advantages in the
procurement markets which none of its competitors has.
Rewe/Billa is a centrally managed chain-store company
which can decide centrally about important factors in
competition such as the composition of the range it
carries. If the decision is taken at Rewe/Billa head office
to include a certain product in the range, according to
the information in the Commission’s possession only
two weeks or so go by before the product is available
in every Billa shop in the country.

(108) The closest competitor, Spar, on the other hand, is
much less centralised, the majority of Spar outlets
(71 %) being run by independent retailers. When
launching a new product at Spar, the producer has to
deal with three separate levels within the Spar group,
namely the head office, regional Spar organisations
and individual Spar traders. It accordingly takes much
longer ([...]*) before a new product is available in a
large number of Spar outlets. A 100 % availability rate,
which is attainable at Billa without any difficulty, is
normally impossible at Spar. Rewe/Billa cannot be
bypassed in Austria when it comes to launching new
products, and this places Rewe/Billa at a competitive
advantage vis-à-vis producers as far as any modifying
of the range is concerned.

(109)

(bb) The dominant position in the eastern Austrian/Vienna
region strenghtens the position of Rewe/Billa/Meinl in the
Austrian demand markets. In order for a firm/product to
be present throughout Austria, it is essential, according
to the information in the Commission’s possession, in
all the product categories listed in recital 98 to be
represented in the eastern Austrian/Vienna region. As
was stated in recitals 32 et seq., it is in this region that
the centre of gravity of the Austrian economy lies.
According to AC Nielsen, 41 % of Austrian food-
retailing trade turnover is achieved there (of which
20 % is in Vienna alone). And a national advertising
strategy makes sense only if a product is actually
obtainable throughout the country.

(110) With the exception of a few firms (30), all the producers
of goods in the abovementioned categories who were
surveyed told the Commission that an adequate pres-
ence in eastern Austria and especially in Vienna was

impossible without a listing with Rewe/Billa/Meinl.
Before the merger, Meinl offered firms not listed with
Rewe/Billa an alternative, especially through its strong
presence in the Vienna area. This alternative has now
disappeared. The remaining competitors are too weak
in eastern Austria and above all in Vienna to represent
a viable alternative to the parties (market shares of
at most [< 20]% [Spar] or [< 12]% [ADEG, Löwa].
Similarly, for the reasons given above, neither Hofer
nor sales channels outside the food-retailing trade are
alternative outlets for producers.

(111)

(cc) Rewe/Billa is using own brands strategically to further
reduce its already limited dependence on suppliers. On
average the own-brand share in Austria amounts,
according to the notifying parties, to approximately
[< 10]% (minus Hofer, which stocks almost nothing
but own brands, but which cannot use them strategi-
cally against branded-goods producers in the manner
described below). Billa’s own-brand share is well above
average in some product categories:

Product category

Billa Merkur Mondo Emma

Bipa

(%)

Dairy products

[...]*

[...]*

[...]*

[...]*

Fruit and vegetables

[...]*

[...]*

[...]*

[...]*

Wines and spirits

[...]*

[...]*

[...]*

[...]*

Pet foods

[...]*

[...]*

[...]*

[...]*

[...]*

Personal hygiene

[...]*

[...]*

[...]*

[...]*

[...]*

(112) The growth and increasing importance of own brands
are having the effect of shifting the balance of power
between traders and producers in favour of traders. A
trader has own brands produced to his own require-
ments and under his own logo. The actual producer is
no longer visible to the customer and is therefore
exchangeable almost at will. This can be illustrated by
the example given to the Commission of Billa’s own
brand ‘Heidi Teebutter’, which, using almost indentical
packaging, was produced, first by an Austrian pro-
ducer, then by a Dutch one. The trader thereby enters
de facto into direct competition with branded goods
producers. The effect is that of a backwards integration
into the producer stage (31).

(30) Namely small producers of fresh produce who deliver only
locally in western Austria, firms which have opted for supplying
Hofer, and a few firms which supply products mainly through
sales channels other than the food-retailing trade.

(113) The presence of own brands endangers in particular
weaker brands which do not number among the
must-carry products. Such brands are quite easily

(31) See OECD background paper, p. 13.

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replaceable by own brands. The presence of own
brands therefore makes delisting threats against the
producers of such brands even more credible than
against producers of must-carry brands.

C. UNDERTAKING OFFERED BY THE PARTIES

1. Undertaking

(118)

the Commission’s objections to
In order to meet
the proposed operation, the parties have made the
following commitments.

(114) The Commission’s attention has been drawn to specific
instances where, in various product categories, Billa
has selectively delisted secondary brands or weaker
producer’s brands (not only of international branded
goods producers but also goods of Austrian producers)
and replaced them with own brands. Although must-
carry products are as a rule not delisted, as they
continue to be needed on the shelves as eye-catchers,
their share is reduced to the extent necessary for them
to perform their eye-catching function, for example by
limiting the range. By the same token, the own-brand
share can be considerably increased.

(115)

further

(dd) The dominant position to which the operation will give
rise in the distribution market will
strengthen
Rewe/Billa/Meinl’s position in the procurement markets. As
indicated above (recitals 21 to 70) the operation will
lead to the creation of a dominant position in the
Austrian food-retailing market. The increased market
shares in the distribution market achieved by Rewe/Bil-
la as a result of the operation will increase the parties’
volume of purchases. The higher Rewe/Billa’s volume
of purchases, however, the more dependent producers
will be on this customer and the easier it will be for it to
secure further improvements in its buying conditions.

(c) Causality

(116) As was explained in recitals 63 to 69, the parties have
satisfied, in respect of the food-retailing market, none
of
the Commission’s three tests in the Kali and
Salz/MdK/Treuhand decision for sustaining the defence
of lack of causality. The proposed merger therefore
results a fortiori in the creation of a dominant position
on the part of Rewe/Billa/Meinl in the Austrian pro-
curement markets mentioned below.

(d) Conclusion

(117)

It is accordingly to be assumed that, as a result of
the operation, dominant positions on the part of
Rewe/Billa will be created or strengthened in the
procurement markets for dairy products, bread and
pastries, soft drinks, hot beverages, basis foodstuffs,
baby foods, pet foods, detergents, polishes and cleaning
products, and body care products and cosmetics.

‘Meinl will transfer to Rewe/Billa for operation as
food-retailing outlets only those shops which are
mentioned in the list attached to the letter of
26 January 1999 (Annex 1) as being sites to be
transferred. The sites mentioned in Annex 1 are
Meinl shops situated outside the territory of eastern
Austria (Vienna, Lower Austria and northern Bur-
genland). Rewe/Billa undertakes to take possession
of these shops alone with a view to operating them
as food-retailing outlets.

Meinl will transfer to Rewe/Billa the shops listed in
Annex 2, which shops will be converted into Bipa
shops within three months of the Rewe/Billa merger
being authorised and will continue to be operated
as such indefinitely. Rewe/Billa undertakes in this
respect not
to operate, pending the completed
conversion, as food-retailing outlets of Rewe/Billa
any of the 45 Meinl sites intended for Bipa. Rewe/Bil-
la undertakes for an unlimited period not to recon-
vert into food-retailing outlets, once they have been
converted, any of the 45 Meinl sites intended for
Bipa. Should Rewe/Billa not wish to continue to
operate as drugstores the shops listed in Annex 2, it
undertakes to offer them for sale to third parties
independent of Rewe/Billa. If a transfer to third
parties is not possible, these sales outlets may be
closed or sub-leased to competitors active indepen-
dently of Rewe/Billa both in the distribution market
and in the procurement markets and to firms active
in markets other than the food-retailing market.

Rewe/Billa will submit to the Commission, every six
months until 28 February 2001 and thereafter every
12 months until 28 February 2004, a written report
on the current status of the Meinl shops which are
to be run as Bipa shops. These reports will contain in
particular all the information which the Commission
needs in order to verify whether the sites listed in
Annex 2 are being operated by Rewe/Billa as
drugstores.

Meinl will, as part of its own business operations,
itself continue to operate the sites listed in Annex 3
and undertakes for an unlimited period not to
transfer any of the shops listed in Annex 3 to
Rewe/Billa or to any of its group member com-
panies. Meinl is free, moreover, to sell shops listed
in Annex 3 to firms independent of Rewe/Billa,
subject if necessary to examination by the competent
competition authority.

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Meinl and Rewe/Billa undertake for an unlimited
period to remain independent of one another when
operating in the distribution and procurement mar-
kets. (At this point in the confidential version of the
decision, further details are given of the parties’
respective undertakings.)

Meinl will submit to the Commission, every six
months until 28 February 2001 and thereafter every
12 months util 28 February 2004, a written report
on the current status of the shops operated by it.
These reports will include all the information which
the Commission needs in order to verify whether
the commitments entered into by Meinl are being
adhered to.’

(123)

2. Assessment

(119) On the basis of the undertaking offered by the parties,
Rewe/Billa will acquire 162 out of a total of 341 Meinl
shops. The annual gross turnovers of the shops to be
acquired total ATS [...] million, which would corre-
spond to an acquisition of 41 % of the total turnover
of Meinl’s shops. It must be borne in mind in this
connection, however, that, of the 162 shops, 45 will
be converted into Bipa drugstores. The food-retailing
turnovers of these shops correspond to a 7 % share of
Meinl’s aggregate food-retailing turnovers. Rewe/Billa
will therefore in fact acquire only 34 % of Meinl’s
aggregate food-retailing trade turnovers. The increase
in Rewe/Billa’s share of the Austrian food-retailing
market will accordingly amount
to approximately
2,5 %, as opposed to 7 % on the basis of the proposal
as originally notified.

(120) Meinl will remain active in the food-retailing distri-
bution market in Austria as an ongoing competitor
with 179 shops. It will concentrate its food-retailing
activities on eastern Austria, where it is already in a
stronger position than elsewhere. With the proceeds
from the sale of 162 shops to Rewe/Billa, Meinl will
also be able to carry out much-needed restructuring
and above all it may be able to build on and improve
its position in eastern Austria.

(121) The 117 Meinl shops which Rewe/Billa can acquire
and continue operating as food-retailing outlets are
located outside the key region of eastern Austria. The
increase in market share will therefore occur in areas
where Rewe/Billa has so far been in a weaker position.
In the key region of eastern Austria, on the other hand,
the already strong position of Rewe/Billa will not be
further strengthened, as Rewe/Billa will not be acquir-
ing there, any shops earmarked for operation as
food-retailing outlets. What is more, Meinl will be
active in eastern Austria with 179 shops.

(122) As regard large-surface stores, the increase in the
number of PamPam hypermarkets is being limited to
16 instead of 40 as originally notified. The increase is

taking place, moreover, outside the key region of
eastern Austria, in areas where Rewe/Billa’s Merkur
hypermarket chain is not so strongly represented. As
far as the key locations covered by the RegioPlan study
are concerned Rewe/Billa will acquire half the sites
occupied by Meinl
in shopping centres, specialised
supermarket centres and inner-city shopping streets.
Here too, however, the increase will be limited to
locations outside the key region of eastern Austria.

In the procurement markets,
the sharply reduced
market-share increase in the distribution market will
mean that the dependence of suppliers on Rewe/Billa
as buyers in the product categories referred to in recital
99 will be hardly any greater. The purchasing potential
which will accrue to Rewe/Billa as a result of the
amended operation will have no noticeable influence
on the position of Rewe/Billa in the procurement
markets. Nor will Rewe/Billa further strengthen its
strong position in eastern Austria. In addition, Meinl
will be active as a purchaser in the procurement
markets, albeit to a lesser extent, and will remain an
alternative outlet for suppliers, owing especially to its
strong presence in the Vienna area. It is accordingly to
be assumed that the position which Rewe/Billa will
occupy in the procurement markets after the operation
takes place will be of an order of magnitude such that
no dominant position is created and no existing
dominant position is strengthened.

(124) Third parties have argued, on the other, hand, that,
through the acquisition of 45 Meinl sites which are to
be converted into Bipa shops, the posision of Rewe/Bil-
la in four non-food procurement markets, baby foods,
pet foods, detergents/polishes/cleaning products and
body-care products/cosmetics, will be strengthened in
a way which at least compares with the original
proposal.

(125)

It should be pointed out first of all that, looked at from
the operation relates to the
a competition angle,
takeover of Meinl’s present position in the distribution
market and the various procurement markets. When
considering the procurement markets, only the volume
of demand which is attributable to the acquired Meinl
sites can therefore be taken into account. In a merger
review context, however, theoretically higher demand
volumes which might arise following conversion of
these sites cannot be taken as a criterion. Nor can any
safe assertion be made in this respect. A total of
at most 41 % of Meinl’s demand volume in the
procurement markets is to be assigned to Rewe/Billa,
assuming that the position in the procurement markets
is proportional to that in the distribution market. It
the position of
follows from this, however,
REWE/Billa in three of the said non-food procurement
markets is being strengthened by less than 1 % and

that

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Official Journal of the European Communities

L 274/21

in the market for detergents, polishes and cleaning
products by less than 1,5 %. Bearing in mind, more-
over, that in these markets, unlike in the food sector,
large multinational groups are predominantly active, it
is not possible to infer from an increased demand
potential of the above order of magnitude any strength-
ening of Rewe/Billa’s position of relevance from a
merger-control point of view.

(126) Third parties have also argued that the takeover of a
total of 45 Meinl shops which are to be converted into
Bipa shops will cause competition problems in the
specialised drugstore trade in Austria.

(127)

In its decision of 28 September 1998 the Commission
reserved the right to examine the market for drugstore
products more closely in the course of the proceedings
to be initiated. On the basis of the investigations that
the Commission has come to the
it carried out,
conclusion that the concentration in the specialised
drugstore trade in Austria gives rise to no objections
under competition law. Since Meinl operates no drug-
stores, there was on the basis of the proposed operation
as originally notified no market-share addition on the
supply side. As regards the growth, likewise established
on the basis of the proposed operation as originally
notified, in the four non-food procurement markets of
foods, detergents/polishes/cleaning
baby foods, pet
products and body-care product/cosmetics, this was,
in view of the unchanged position on the supply side,
not likely to strengthen the position of Rewe/Billa in
the specialised drugstore trade in such a way as to
affect merger control considerations.

(128) Nor can a different view be taken on the basis of the
undertaking offered. This holds true even if one focuses
only on drugstores. The current market volume for the
Austrian specialised drugstore trade is estimated at just
under EUR 1 billion (ATS 13 billion). In the drugstore
field, three main suppliers with comparable market
shares are active in Austria:

— dm-Drogeriemarkt GmbH,

in which Spar has a
is the strongest supplier with a

33 % holding,
market share of 39 to 43 % and [...]* shops,

Pursuant to the undertaking, Rewe/Billa would acquire
45 shops which are currently operated by Meinl as
food-retailing outlets and which may no longer con-
tinue to be operated as such by Rewe/Billa. Assuming
that Rewe/Billa converts all 45 shops into Bipa shops
and that all 45 shops achieve the average turnover
for drugstores in Austria of EUR 727 000 (ATS
10 million) (33), Bipa would achieve additional sales
of EUR 32 million (ATS 450 million). This purely
hypothetical increase in Bipa’s turnover would corre-
spond to a share of less than 3,5 % of the Austrian
specialised drugstore trade. Even if the average turnover
per Bipa shop were taken as a basis, this would result
in only a slightly higher share of just over 4 %. The
conversion of 45 Meinl shops into Bipa shops would
therefore at most enable Rewe/Billa to catch up with
the current market leader dm-Drogeriemarkt GmbH,
assuming that the shops that are acquired and convert-
ed can be run as successfully as the existing Bipa shops.

(129) The Commission is accordingly of the opinion that the
proposed undertaking is such as to avert the creation
or strengthening of a dominant position in the Austrian
food-retailing market and in the Austrian procurement
markets referred to in recital 117.

VI. SUMMING-UP

(130)

For the above reasons, it may be accepted that, on
condition that the undertaking offered by the parties is
carried out, the planned operation will not lead to the
creation or strengthening of dominant positions as
a result of which effective competition would be
the
significantly impeded in a substantial part of
Community. Subject to this condition, the operation is
therefore to be declared, pursuant to Article 2(2) of
the Merger Regulation and Article 57 of the EEA
Agreement, compatible with the common market and
with the functioning of the EEA Agreement,

HAS ADOPTED THIS DECISION:

— Rewe/Billa-owned Bipa is, with 33 to 35 % and,
according to it, 340 shops (32), is the second-largest
supplier,

Article 1

— the Schlecker drugstore chain has a market share
of 22 to 28 % and operates some 550 shops.

The notified operation whereby Rewe Internationale Beteili-
gungsgesellschaft mbH and REWE-Verkaufsgesellschaft mbH
are to acquire sole control over the entire share capital of

(32) As many as 370 according to other sources.

(33) Nielsen’s countrywide estimate.

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Official Journal of the European Communities

23.10.1999

Meinl is, on condition that the undertaking offered by the
parties and reproduced in recital 118 of this Decision is carried
out, hereby declared compatible with the common market and
with the functioning of the EEA Agreement.

REWE-Verkaufsgesellschaft mit beschränkter Haftung
Domstrasse 20
D-50668 Köln

Article 2

Done at Brussels, 3 February 1999.

This Decision is addressed to:

REWE Internationale Beteiligungsgesellschaft mit beschränkter
Haftung
Domstrasse 20
D-50668 Köln

For the Commission

Karel VAN MIERT

Member of the Commission