CELEX: 32021M10459
Language: en
Date: 2021-11-15 00:00:00
Title: Commission Decision of 15/11/2021 declaring a concentration to be compatible with the common market (Case No COMP/M.10459 - CVC / STOCK SPIRITS GROUP) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 15.11.2021
                                                                 C(2021) 8387 final
                                                                                  PUBLIC VERSION
                                                                  In the published version of this decision,
                                                                  some information has been omitted
                                                                  pursuant to Article 17(2) of Council
                                                                  Regulation (EC) No 139/2004 concerning
                                                                  non-disclosure of business secrets and other
                                                                  confidential information. The omissions are
                                                                  shown thus […]. Where possible the
                                                                  information omitted has been replaced by
                                                                  ranges of figures or a general description.
                                                                 CVC Capital Partners SICAV-FIS S.A.
                                                                 20 Avenue Monterey
                                                                 L-2163 Luxembourg
                                                                 Luxembourg
Subject:             Case M.10459 – CVC / STOCK SPIRITS GROUP
                     Commission decision pursuant to Article 6(1)(b) of Council Regulation
                     No 139/20041 and Article 57 of the Agreement on the European Economic
                     Area2
Dear Sir or Madam,
(1)       On 7 October 2021, the Commission received notification of a concentration,
          pursuant to Article 4 of the Merger Regulation, which would result from a proposed
          transaction by which CVC Capital Partners SICAV-FIS S.A. (“CVC”, Luxembourg)
          intends to acquire sole control, under the meaning of Article 3(1)(b) of the Merger
          Regulation, over Stock Spirits Group plc (“Stock Spirits”, United Kingdom) by
          means of a public bid (‘the Transaction’).3 In this Decision, CVC is referred to as ‘the
          Notifying Party’ and, together with Stock Spirits, collectively referred to as the
1     OJ L 24, 29.1.2004, p. 1 (the ‘Merger Regulation’). With effect from 1 December 2009, the Treaty on the
      Functioning of the European Union (‘TFEU’) has introduced certain changes, such as the replacement of
      ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology of the TFEU will
      be used throughout this decision.
2     OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
3     Publication in the Official Journal of the European Union No C 421, 18.10.2021, p. 7.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---          ’Parties’. The entity that would result from the Transaction is referred to as ‘the Merged
         Entity’.
1.       THE PARTIES
(2)      Stock Spirits is a producer and distributor of spirit drinks in Europe, including in
         Poland.
(3)      CVC and its subsidiaries manage investment funds and platforms. Zabka Polska
         (“Zabka”, Poland) is one of the portfolio companies controlled by CVC and is active
         in the retail distribution of consumer goods in non-specialized stores in Poland.
2.       THE CONCENTRATION
(4)      The concentration is to be achieved by means of the launch of a public bid, which
         was announced on 12 August 2021 and after which CVC expects to indirectly own
         100% of the share capital of Stock Spirits.
(5)      In light of the above, the Transaction would thus result in a concentration within the
         meaning of Article 3(1)(b) of the Merger Regulation.
3.       UNION DIMENSION
(6)      The Parties have a combined aggregate world-wide turnover of more than EUR
         5 000 million (CVC: EUR […]; Stock Spirits: EUR […]).4 Each of them has
         a Union-wide turnover in excess of EUR 250 million (CVC: EUR […]; Stock
         Spirits: EUR […]), but neither of the Parties achieves more than two-thirds of their
         aggregate Union-wide turnover within one and the same Member State.
(7)      The concentration therefore has a Union dimension within the meaning of
         Article 1(2) of the Merger Regulation.
4.       M ARKET DEFINITION
(8)      The Parties’ activities do not give rise to any horizontal overlap. They give rise to
         vertical relationships between Stock Spirits’ activities in the wholesale supply of
         wine and spirit drinks to off-trade retailers in Poland and CVC’ activities (through
         Zabka) in the retail supply of daily consumer goods in Poland.
4.1.     Product market definition
4.1.1. Production and distribution of spirit drinks
4.1.1.1. The Commission’s precedents
(9)      In previous decisions, the Commission defined distinct markets for the production
         and distribution of different types of spirit drinks (e.g. vodka, whisky, brandy, rum,
4    Turnover calculated in accordance with Article 5 of the Merger Regulation .
                                                           2
 ---pagebreak---          gin etc.).5 The Commission has also contemplated further segmentations according
         to (i) product characteristics (e.g. blended malt whisky,6 cognac or Armagnac
         brandy7 ), (ii) price/quality,8 (iii) the country of origin (e.g. Scottish whisky) and
         (iv) distribution channels (e.g. on-trade or off-trade).9
(10)     As for vodka in particular, while leaving the exact market definition open, the
         Commission contemplated in previous decisions plausible segmentations (i) between
         flavoured and clear (i.e. non-flavoured) vodka and (ii) according to price.10 To date,
         the Commission has never contemplated the definition of separate markets for
         different bottle sizes.
4.1.1.2. The Notifying Party’s views
(11)     The Notifying Party does not contest the definition of a separate market for the
         supply of vodka in the off-trade channel.11 However, the Notifying Party explains
         that a further segmentation between clear and flavoured vodka is irrelevant. In this
         respect, the Notifying Party submits that the production process of clear and
         flavoured vodka is very similar and providers typically offer both types of products,
         which they sell side-by-side in retail stores, under the same brand names, with
         similar ads and promotions.
(12)     Likewise, the Notifying Party argues that a further segmentation according to bottle
         sizes12 is irrelevant because: (i) from the point of view of consumers, the product is
         the same, whatever the size of the bottle and, (ii) from the point of view of suppliers,
         most bottling lines allow for filling of different sizes or can be modified easily and
         inexpensively.13
(13)     Regarding a possible sub-segmentation based on price, the Parties take the view that
         such a segmentation would not be relevant because the manufacturing equipment
         and processes for producing lower-priced and higher-priced vodka are identical and
         most manufacturers supply both “premium” and “mainstream” brands.
4.1.1.3. The Commission’s assessment
         (A)    Distinction by type of spirits
(14)     In the case at hand, the Commission considers that there is no reason to depart from
         the Commission’s precedents regarding the existence of separate markets for each
5   Case M.5114 – Pernod Ricard / V&S.
6   Case M.3779 – Pernod Ricard / Allied Domecq.
7   Case M.5114 – Pernod Ricard / V&S.
8   Case M.5114 – Pernod Ricard / V&S.
9   Case M.2268 – Pernod Ricard / Diageo / Seagram Spirits; Case M.3779 – Pernod Ricard / Allied
    Domecq.
10  Case M.5114 – Pernod Ricard / V&S.
11  Form CO, paras. 62-63.
12  E.g. less than 350 ml, between 500 ml and 700 ml, or above 1000 ml.
13  Form CO, paragraphs 64 to 68.
                                                         3
 ---pagebreak---          type of spirits.14 This is not contested by the Notifying Party and is consistent with
         the internal documents provided by the Parties, which look at vodka separately.15
(15)     For the purpose of this case, the Commission considers that there is a separate
         market for the production and distribution of vodka. The Transaction will focus on
         that market because the Transaction does not give rise to affected markets for the
         production and distribution of other spirits. 16
         (B)     Distinction by distribution channel
(16)     The market investigation supported the relevance of the segmentation between on-
         trade and off-trade. From a demand point of view, these two channels differ in terms
         of clients, prices,17 product characteristics18 and brands.19 By way of illustration, one
         retailer explained that: “Each channel has [its] own specific […] model of
         distribution.”20
(17)     In any event, whether the overall market for the production and distribution of vodka
         has to be segmented by distribution channel, i.e. between off-trade and on-trade can
         be left open, as the Transaction does not give rise to competition concerns under any
         plausible market definition. For the purposes of this Decision and under a
         conservative approach, the Commission will factor into its assessment of the
         Transaction a distinction by distribution channel. Given that the overlap between the
         Parties’ activities only concern the off-trade channel, the competitive analysis will be
         conducted on that basis.
         (C)     Distinction by format of vodka bottle
(18)     The Commission also examined whether the segmentation according to bottle sizes
         is relevant. In this respect, the market investigation elicited mixed results.
(19)     On the one hand, several elements suggest that a segmentation according to bottle
         sizes could be relevant as: (i) the Parties make a distinction between different bottle
         sizes in their internal documents21 , (ii) a majority of retailers explained that the
14  I.e. each individual internationally recognised spirit type (whiskey, gin, vodka, rum, etc.). See M.5114 –
    Pernod Ricard / V&S, para. 8
15  Annex 8 - CVC Final Investment Recommendation.
16  Zabka is active only in Poland and Stock Spirits’ sales of vodka in Poland represent [90-100]% of its total
    volume of sales. As explained in further detail below, CVC’s market share on the downstream market for
    the retail supply of daily consumer goods remains below 30% under any plausible market definition. In
    the meantime, Stock Spirits’ market share remains below 30% under any plausible market definition for
    the supply of wine or spirit drinks other than vodka to off-trade retailers in Poland
17  Prices are higher in the on-trade channel than the off-trade channel (Response to Questionnaire 1 to
    retailers, question 4.1).
18  E.g. small-format vodka is less sold in the on-trade channel which is more focused on larger formats
    (Responses to Questionnaire 1 to retailers, question 4.1).
19  Mainstream brands of vodka are mostly sold on the off-trade channel (Responses to Questionnaire 1 to
    retailers, question 4.1).
20  Response to Questionnaire 1 to retailers, question 4.1.
21  Annex 8 (CVC Final Investment Recommendation).
                                                            4
 ---pagebreak---          supply of vodka to off-trade retailers differs depending on the format22 and (iii) not
         all suppliers are active on the segment for small format vodka.23
(20)     On the other hand, the Commission found evidence suggesting that different bottle
         sizes may be substitutable: (i) from a demand-side perspective, because a large
         majority of retailers purchase all formats of vodka; and (ii) from a supply-side
         perspective, because a large majority of spirits manufacturers indicated that they sell
         all formats of vodka.24
(21)     In any event, whether the overall market for the production and distribution of vodka
         has to be segmented according to bottle sizes (i.e. between small, medium and large
         bottles) can be left open, as the Transaction would not give rise to competition
         concerns under any plausible market definition.
(22)     For the purposes of this Decision and under a conservative approach, the Transaction
         will be assessed based on a distinction by bottle size.
         (D)     Distinction between clear and flavoured vodka
(23)     The Commission also investigated whether the segmentation between clear and
         flavoured vodka is relevant. The market investigation elicited mixed results in this
         respect.
(24)     On the one hand, the Commission found evidence suggesting that a further
         segmentation between clear and flavoured vodka could be relevant as: (i) the Parties
         make a distinction between clear and flavoured vodka in their internal documents25
         and (ii) a majority of retailers consider that the conditions for the supply of vodka to
         off-trade retailers differ between clear and flavoured vodka. 26 One retailer explained
         for instance that the “Main difference is higher price pressure on clear vodka (excise
         tax higher/lower margins)”.27
(25)     On the other hand, several elements tend to mitigate the relevance of such
         segmentation because: (i) most spirits manufacturers sell both types of products28
         and (ii) a majority of retailers buy both types of products29 . By way of illustration,
         according to one retailer: “Regarding [the] comparison of clear and flavored vodka
         there are no significant differences. Price levels, packaging, process of supply is
         similar between these two lines of products”.30
(26)     In any event, whether the overall market for the production and distribution of vodka
         has to be segmented between cleared and flavoured vodka can be left open, as the
         Transaction does not give rise to competition concerns under any plausible market
         definition. For the purposes of this Decision and under a conservative approach, the
22  Response to Questionnaire 1 to retailers, question 4.
23  Responses to Questionnaire 2 to spirits manufacturers, question s 1.1 and 1.2.
24  i.e., small format of <350 ml, medium format of between 500 ml and 700 ml, and large format of
    >1000ml (Responses to Questionnaire 2 to spirits manufacturers, question 1.1.).
25  Annex 8 (CVC Final Investment Recommendation).
26  Responses to Questionnaire 1 to retailers, question 4.
27  Response to Questionnaire 1 to retailers, question 4.1.
28  Responses to Questionnaire 2 to spirits manufacturers, question 1.2.
29  Responses to Questionnaire 1 to retailers, question 1.2.
30  Response to Questionnaire 1 to retailers, question 5.1.
                                                            5
 ---pagebreak---         Commission will factor into its assessment of the Transaction a possible distinction
        between clear and flavoured vodka.
        (E)    Distinction between premium and mainstream vodka
(27)    The Commission notes that the Parties refer to a distinction between premium and
        mainstream spirits in their internal documents (without further segmentations). By
        way of illustration, CVC’s investment recommendation refers to [Information on
        CVC’s views on market practice] for the supply of vodka[…].31 Likewise, Stock
        Spirits’ annual report explains that “Total premium vodka achieved value growth of
        +16.0%, significantly ahead of the total category, reflecting Polish consumers’
        readiness to pay more for premium quality vodka as affluence increases”.32
(28)    In any event, whether the overall market for the production and distribution of vodka
        has to be segmented between premium and mainstream vodka can be left open, as
        the Transaction does not give rise to competition concerns under any plausible
        market definition. For the purposes of this Decision and under a conservative
        approach, the analysis will be conducted based on a distinction between premium
        and mainstream vodka.
4.1.2. Retail of daily consumer goods
4.1.2.1. The Commission’s precedents
(29)    In its precedents, the Commission defined a distinct market for the retail provision of
        daily consumer goods, including dry food-stuffs and non-food household
        consumables sold in a supermarket environment.33 Within this market, the
        Commission contemplated further segmentation between specialised stores on the
        one hand, and hypermarkets, supermarkets and discount chains, on the other hand.34
4.1.2.2. The Notifying Party’s view
(30)    The Notifying Party does not contest the product market definition set out by the
        Commission in its precedents.
4.1.2.3. The Commission’s assessment
(31)    In the case at hand, the Commission does not see any reason to depart from its
        previous decisional practice. In any event, whether the market for retail distribution
        of daily consumer goods has to be segmented between hypermarkets, supermarkets,
        discount chains, on the one hand, and specialised stores, on the other hand can be left
        open, as the Transaction does not give rise to competition concerns under any
        plausible market definition. For the purposes of this Decision and under
        a conservative approach, the analysis will be conducted also based on the narrowest
        possible product segments, i.e. (i) market for the retail distribution of daily consumer
31  Annex 8 (CVC Final Investment Recommendation), p. 9.
32  Annex 7 (Stock Spirits’ annual report), p. 28.
33 Case M.803 – Rewe / Billa ; Case M.914 – Tesco / ABF.
34 Case M.784 – Kesko / Tuko; Case M.803 – Rewe / Billa; Case M.914 – Tesco / ABF; Case M.1221 – Rewe
    / Meinl; Case M.1832 – Ahold / ICA Förbundet / Canica; Case M.3905 – Tesco / Carrefour (Czech
    Republic and Slovakia); Case M.4590 – Rewe / Delvita; Case M.5790 – Lidl / Plus Romania / Plus
    Bulgaria; Case M.9495 – Fortenova Grupa / Poslovni Sistemi Mercator.
                                                      6
 ---pagebreak---          goods in hypermarkets, supermarkets and discount chains and (ii) market for the
         retail distribution of daily consumer goods in specialised stores.
4.2.     Geographic market definition
4.2.1. Production and distribution of spirit drinks
4.2.1.1. The Commission’s precedents
(32)     In past decisions, the Commission considered the markets for the production and
         distribution of spirit drinks to be national in scope, mainly because of strong national
         preferences and consumption behaviours. 35
4.2.1.2. The Notifying Party’s view
(33)     The Notifying Party does not contest the geographic market definition set out by the
         Commission in its precedents.
4.2.1.3. The Commission’s assessment
(34)     In the case at hand, the market investigation confirmed that there is no reason to
         depart from the Commission’s precedents. First, some elements show the existence
         of national consumer preferences. In this respect, one retailer explained that “[the
         typical] Polish client prefers clear vodka.”36
(35)     Second, a vast majority of retailers confirmed that purchases are conducted centrally
         at national level. As explained by one retailer: “All trade conditions and terms are
         negotiated centrally as well as all current orders for all shops.”37 According to
         another retailer: “Contracts with suppliers negotiated centrally by sourcing
         department for all clients”.38
(36)     For the purpose of this Decision, the overall market for the production and
         distribution of vodka to the off-trade channel39 will thus be considered as national in
         scope.
4.2.2. Retail of daily consumer goods
4.2.2.1. The Commission’s precedents
(37)     The Commission considered those markets to be local, with a radius of 20 to
         30 minutes by car, with the exact length of time depending on the specific market
         being examined or, in specific cases, regional or national.40
35   See e.g.: M.5114 – Pernod Ricard / V & S.
36   Response to Questionnaire 1 to retailers, question 5.1.
37   Response to Questionnaire 1 to retailers, question 3.1.
38   Response to Questionnaire 1 to retailers, question 3.1.
39   As mentioned in paragraph (77), the overlap between the Parties’ activities only concerns the off-trade
     channel.
40   Case M.784 – Kesko / Tuko; M.1684 – Carrefour / Promodes; Case M.1832 – Ahold / ICA Förbundet /
     Canica; Case M.3464 – Kesko / ICA / JV; Case M.3905 – Tesco / Carrefour (Czech Republic and
     Slovakia).
                                                             7
 ---pagebreak--- 4.2.2.2. The Notifying Party’s view
(38)     The Notifying Party does not contest these market definitions.
4.2.2.3. Commission’s assessment
(39)     In the case at hand, the Commission does not see any reason to depart from its
         previous decisional practice. In any event, the exact scope of the relevant geographic
         market for the retail distribution of daily consumer goods can be left open as the
         Transaction does not give rise to competition concerns under any plausible market
         definition. For the purposes of this Decision, the Transaction will also factor into its
         assessment the narrowest possible geographic segments, i.e. local markets.
5.       COMPETITIVE ASSESSMENT
(40)     In Poland, Spirit Stocks supplies sparkling wine and various spirit drinks, 41 mainly to
         off-trade retailers, while CVC, through Zabka, is active on the retail distribution of
         daily consumer goods. As set out in paragraph (8) above, the Parties’ activities do
         not give rise to any horizontal overlaps. The Transaction does, however, give rise to
         vertically affected markets between:
         (a)       Stock Spirits’ activities on the upstream markets for the production and
                   distribution of (i) small format clear vodka (overall and with a distinction
                   between premium and mainstream) and (ii) small format flavoured vodka
                   (overall and with a distinction between premium and mainstream); (iii)
                   medium format flavoured vodka (overall and with a distinction between
                   premium and mainstream)42 to off-trade retailers in Poland:
         (b)       CVC’s activities (through Zabka) on the downstream markets for (i) the off-
                   trade retail distribution of daily consumer goods in specialized stores in
                   Poland and (ii) the off-trade retail distribution of daily consumer goods in
                   hypermarkets, supermarkets and discount chains in Poland.
5.1.     Legal framework
(41)     Pursuant to Article 2(2) and (3) of the Merger Regulation, the Commission must
         assess whether a concentration would significantly impede effective competition in
         the internal market or in a substantial part of it, in particular through the creation or
         strengthening of a dominant position. In this respect, a merger can entail horizontal
         and/or non-horizontal effects.
(42)     With particular regard to non-horizontal effects, a merger can entail such effects
         when it involves companies operating at different levels of the same value chain or
         in closely related markets.
(43)     In assessing potential vertical effects of a merger, the Commission analyses, among
         others, whether the merger results in foreclosure so that actual or potential rivals’
41   Vodka, whisky, brandy, gin, genever, rum, cream liqueurs, tequila, cognac, Armagnac and Spirytus
     Lubelski.
42 Stock Spirits’ market share remains below 30% under any plausible market definition for the supply of
     wine or spirit drinks other than vodka to off-trade retailers in Poland.
                                                             8
 ---pagebreak---         access to supplies or markets is hampered or eliminated as a result of the merger,
        thereby reducing those companies’ ability and/or incentive to compete.43 Such
        foreclosure may discourage entry or expansion of rivals or encourage their exit.
        Foreclosure thus can be found even if the foreclosed rivals are not forced to exit the
        market. It is sufficient that the rivals are disadvantaged and consequently led to
        compete less effectively. Such foreclosure is regarded as anti-competitive where the
        merging companies — and, possibly, some of their competitors as well — are as a
        result able to profitably increase the price charged to consumers.
(44)    The Non-Horizontal Merger Guidelines distinguish between two forms of
        foreclosure: (i) input foreclosure, when access of downstream rivals to supplies is
        hampered;44 and (ii) customer foreclosure, when access of upstream rivals to
        a sufficient customer base is hampered.45
(45)    In assessing both types of foreclosure, the Commission assesses whether the merged
        entity (i) would have the ability to engage in foreclosure, (ii) whether it would have
        the incentive to do so, and (iii) what would be the overall impact on effective
        competition in the affected markets.
(46)    The present Section 5 assesses whether the Transaction is likely to raise vertical non-
        coordinated effects on the markets examined in Section 4.
5.2.    Assessment
(47)    In light of the above, this Decision will first provide an overview of the Parties’
        market shares (5.2.1) and will examine successively the risk of input foreclosure
        (5.2.2) and customer foreclosure (5.2.3).
5.2.1. Market shares
(48)    Table 1 outlines the Parties’ market shares on the overall upstream market for the
        production and distribution of vodka in Poland and on the overall downstream
        market for the retail of daily consumer goods in Poland:
43   Non-Horizontal Merger Guidelines, paras. 20-29.
44   Non-Horizontal Merger Guidelines, para. 31.
45 Non-Horizontal Merger Guidelines, para. 58.
                                                     9
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak--- (55)     As shown in Table 1, Stock Spirits’ market share amounts to [30-40]% on the
         overall off-trade market for the production and distribution of vodka. There are
         12 narrower segments that are affected, with the Parties’ combined market shares
         ranging from [30-40]% to [40-50]%. For the reasons set out below, however, the
         Commission considers that CVC will lack the ability to engage in input foreclosure
         post-Transaction.
(56)     First, CVC will lack a significant degree of market power on the upstream market52
         as it will continue to face significant competitive pressure from Roust, which has a
         higher market share on all segments, to the exception of the segment for small
         flavoured vodka. Even on this segment, however, Roust has a market share of
         [40-50]% and is a close competitor of Stock Spirits. This is consistent with CVC’s
         internal investment recommendation, which [Information on CVC’s views on market
         conditions].53
(57)     This is also consistent with the fact that a large majority of retailers (80%)
         acknowledged that they would continue to have credible alternative suppliers,
         including for small bottles of flavoured vodka.54
(58)     Second, there does not seem to be significant switching costs for retailers 55 as the
         large majority of retailers who participated in the market investigation already
         multisource from several suppliers (including for small bottles of flavoured vodka).56
         In response to an input foreclosure strategy, these retailers could thus easily switch
         to the remaining alternative suppliers.
(59)     Third, on the segment for small flavoured vodka, CVC will continue to face a certain
         degree of competitive pressure from other formats. In this respect, the Commission
         notes that after the introduction on 1 January 2021 of an additional tax in Poland on
         small bottles of vodka (the “Small Format Tax”) a number of customers switched to
         purchasing larger formats.57
(60)     In this respect, the figure below shows the total sales of vodka by bottle size for the
         months following the introduction of the tax in January 2021 versus sales in the
         preceding year.
52  Non-Horizontal Merger Guidelines, para. 35.
53  As for the segment of premium vodka, Stock Spirits will have a market share of [20-30]% whereas
    Roust’s market share will be limited to only [10-20]%. On this segment, however, Stock Spirits will
    continue to face significant competitive pressure from Pernod Ricard ([20-30]%) and other competitors
    with sizeable market shares, including Polmos ([10-20]%) and Brown-Forman ([10-20]%).
54  Responses to Questionnaire 1 to retailers, question 8.
55  Non-Horizontal Merger Guidelines, para. 34.
56  Responses to Questionnaire 1 to retailers, question 2.
57  The Small Format Tax comprises a duty increase imposed on wholesalers of PLN 25 (c. EUR 5.5) per litre
    of pure alcohol on formats of 300ml or less. For example, a 100ml bottle of 40% ABV spirit would incur
    an additional duty of PLN 1, and an equivalent 40% ABV spirit packaged in a 200ml bottle would incur
    an additional duty of PLN 2. The Target is not aware of how the Polish government determined the lev el
    of the Small Format Tax as the Polish authorities have not publicly indicated on what basis the amount of
    25 PLN per litre of pure alcohol was decided. The Small Format Tax does not technically apply to sales to
    consumers via the on-trade, but in any case, the Target notes that in practice, it is very difficult for
    manufacturers such as itself to ascertain whether products will ultimately be sold by wholesalers to
    retailers and consumers via the on- or off-trade. The Target also notes that sales of small format spirits to
    the on-trade are minimal.
                                                           13
 ---pagebreak---  ---pagebreak--- (63)    Based on the considerations above, and in light of the results of the market
        investigation and of all the evidence available to it, the Commission finds that the
        Merged Entity will lack the ability to engage in input foreclosure post-Transaction.
5.2.2.2. Incentive
(64)    For the reasons set out below, the Commission considers that the Merged Entity will
        lack the incentive to engage in input foreclosure post-Transaction.
(65)    First, the limited market share of Zabka (CVC) on the downstream market at
        national level ([10-20]%) makes it less likely that it will have the incentive to engage
        in input foreclosure because the base of sales on which Stock Spirits would enjoy
        increased margins would be limited 59 .
(66)    Second, several participants to the market investigation confirmed that Zabka would
        be too small on the downstream markets for the Merged Entity to have an incentive
        to engage in input foreclosure. In addition, the market investigation did not reveal
        that Zabka would be a significant player on any local market. According to one
        retailer, for instance: “Zabka is too small in terms of volume and do[es] not have full
        coverage in total Poland”.60 Likewise, according to another retailer: “We do not see
        a real risk that Stock Spirits would stop selling us vodka”.61
(67)    Based on the considerations above, and in light of the results of the market
        investigation and of all the information available to it, the Commission considers
        that CVC will lack the ability and incentive to engage in input foreclosure post-
        Transaction. As a result, the Commission concludes that the contemplated
        Transaction does not give rise to input foreclosure concerns without there the need to
        consider the overall impact that such a strategy would have on the market.
5.2.3. Customer foreclosure
5.2.3.1. Ability
(68)    Some competitors of Stock Spirits expressed concerns during the market
        investigation alleging that Zabka would be an unavoidable trading partner for the
        supply of vodka in Poland, in particular because Zabka is a big and fast-growing
        retailer, especially on the segment for small convenience stores. 62 However, for the
        reasons set out below, the Commission considers that CVC would lack the ability to
        foreclose Stock Spirits’ competitors upstream.
(69)    First, Zabka lacks a significant degree of market power downstream for the retail
        distribution of daily consumer goods. As explained above, on this market Zabka’s
        share at national level is equal to [10-20]% and this market share remains also
        limited at regional level (below [10-20]%). At local level, based on the Parties’ best
59  Likewise, when considering local markets for the retail distribution of daily consumer goods, the limited
    size of local markets downstream would limit the incentive of the new entity to engage in input
    foreclosure because (i) the base of sales on which Stock Spirits would enjoy increased margins would be
    local; whereas (ii) all competing retailers confirmed that they purchase vodka at national level (i.e.
    centrally for all their stores in Poland) so the base of sales on which Stock Spirits would lose volumes
    would be national (response to Questionnaire 1 to retailers, question 3).
60 Response to Questionnaire 1 to retailers, question 9.
61 Response to Questionnaire 1 to retailers, question 9.
                                                          15
 ---pagebreak---         estimates, Zabka’s market share would remain below 30% so Stock Spirits’
        competitors would remain able to sell their products to a sufficient number of
        alternative customers.
(70)    Second, the market investigation confirmed that Stock Spirits’ competitors will
        continue to have a sufficient client base post-Transaction as Zabka only represents
        approximately [10-20]% of their sales of vodka.63 Based on the Parties’ internal data,
        this figure does not appear to change significantly across segments.
(71)    Third, Stock Spirits’ competitors already supply Zabka’s competitors64 . This shows
        that Zabka’s competitors constitute credible alternatives to which Stock Spirits’
        competitors upstream could easily switch. Therefore, the Commission is of the view
        that CVC will lack the ability to engage in customer foreclosure post-Transaction.
5.2.3.2. Incentive
(72)    For the reasons set out below, the Commission considers that the Merged Entity will
        lack the incentive to engage in customer foreclosure.
(73)    First, Zabka’s limited market share downstream limits the base of sales on which
        Stock Spirits could benefit from increased margins as a result of a customer
        foreclosure strategy.65
(74)    Second, only a minority of upstream competitors expressed concerns that the
        transaction would have an impact on the distribution of vodka in retail stores in
        Poland.66 One competitor of Stock Spirits explained in particular that “given the
        percentage share of Zabka stores in vodka sales in Poland, there will be no
        impact”.67
(75)    Accordingly, the Commission finds that the Merged Entity will lack the ability and
        incentive to engage in customer foreclosure so there is no need to consider the effect
        of any such strategy.
5.2.4. Conclusion on vertical non-coordinated effects
(76)    In light of the considerations above and based on the results of the market
        investigation and of all the information available to it, the Commission concludes
        that the Transaction does not give rise to serious doubts as to its compatibility with
        the internal market and the EEA agreement with respect to vertical non-coordinated
        effects in:
        (a)      the upstream markets for the production and distribution of (i) small format
                 clear vodka (overall as well as distinguishing between premium and
                 mainstream) and (ii) small format flavoured vodka (overall as well as
                 distinguishing between premium and mainstream); (iii) medium format
62  Responses to Questionnaire 2 to competitors, question 5.
63  Non-Horizontal Merger Guidelines, para. 61.
64  Responses to Questionnaire 1 to retailers, question 2.
65  Non-Horizontal Merger Guidelines, para. 70.
66  Response to Questionnaire 2 to competitors, question 7.
67  Response to Questionnaire 2 to competitors, question 8.1.
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 ---pagebreak---                   flavoured vodka (overall as well as distinguishing between premium and
                  mainstream)68 to off-trade retailers in Poland;
        (b)       the downstream markets for (i) the off-trade retail distribution of daily
                  consumer goods in specialized stores in Poland and (ii) the off-trade retail
                  distribution of daily consumer goods in hypermarkets, supermarkets and
                  discount chains in Poland.
6.      CONCLUSION
(77)    For the above reasons, the Commission has decided not to oppose the notified
        operation and to declare it compatible with the internal market and with the EEA
        Agreement. This Decision is adopted in application of Article 6(1)(b) of the Merger
        Regulation and Article 57 of the EEA Agreement.
                                                                   For the Commission
                                                                   (Signed)
                                                                   Margrethe VESTAGER
                                                                   Executive Vice-President
68  Stock Spirits’ market share remains below 30% under any plausible market definition for the supply of
    wine or spirit drinks other than vodka to off-trade retailers in Poland.
                                                            17