CELEX: 32018M9122
Language: en
Date: 2018-12-21 00:00:00
Title: Commission Decision of 21/12/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.9122 - The Coca-Cola Company / Costa Limited) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 21.12.2018
                                                                C(2018) 9220 final
  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                         PUBLIC VERSION
  other confidential information. The omissions are
  shown thus […]. Where possible the information
  omitted has been replaced by ranges of figures or a
  general description.
                                                                To the notifying party
Subject:            Case M.9122 - TCCC / Costa
                    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 20 November 2018, the European Commission received notification of a
          proposed concentration pursuant to Article 4 of the Merger Regulation by which
          The Coca-Cola Company ("TCCC" or the "Notifying Party", U.S.), acquires
          within the meaning of Article 3(1)(b) of the Merger Regulation control of the
          whole of Costa Limited ("Costa", UK) by way of purchase of shares ("the
          Transaction”).3 TCCC and Costa are together referred to as the "Parties".
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 429, 28.11.2018, 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--- 1.       THE PARTIES
(2)      TCCC is a US-based brand owner and licensor of various trademarks used to
         market and sell non-alcoholic commercial beverages.4 It produces soft drink
         concentrate and syrups that it supplies to bottling and canning operations
         ("Bottlers"), as well as fountain retailers.5 TCCC also administers Coca-Cola
         Bottlers' Agreements entered into with the Bottlers to which it sells its
         concentrates and syrups, and is responsible for the consumer marketing of
         beverages sold under its trademarks. In certain instances, TCCC produces and
         sells finished beverages.
(3)      Costa operates coffee shops in a limited number of EU Member States. Costa and
         its affiliated entities engage in this business in the EU through multichannel
         operations including equity stores and franchise stores. In addition, Costa has a
         wholesale operations for the sale of packaged, roast and ground ("R&G") coffee
         and other ingredients. Costa also operates hot beverage vending machines
         ("express machines") through self-serve Costa Express machines located at its
         partners' premises.
2.       THE OPERATION AND THE CONCENTRATION
(4)      The transaction consists in the acquisition of the entire share capital of Costa by
         TCCC. The SPA was signed on 31 August 2018.
(5)      Therefore, the Transaction constitutes a concentration within the meaning of
         Article 3(1)(b) of the Merger Regulation.
3.       EU DIMENSION
(6)      The undertakings concerned have a combined aggregate world-wide turnover of
         more than EUR 5 000 million (TCCC: 31 345 million, Costa […]).6 Each of them
         has a Union-wide turnover in excess of EUR 250 million (TCCC: […], Costa
         […]), but neither undertaking achieves more than two-thirds of its aggregate
         Union-wide turnover within one and the same Member State.
(7)      The notified operation therefore has a Union dimension pursuant to Article 1(2)
         of the Merger Regulation.
4   Non-alcoholic commercial beverages is a broad category of non-alcoholic beverages, otherwise known
    as "soft drinks", including packaged water, still drinks, iced teas, fruit juices, sports and energy drinks
    and other soft drinks (see e.g. Form CO, paragraph 107).
5   Fountain retailers are outlets, such as restaurants and convenience stores, which use dispensing
    equipment to mix the syrups with sparkling or still water at the time of purchase to produce finished
    beverages that are served in cups or glasses for immediate consumption.
6   Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                          2
 ---pagebreak--- 4.       RELEVANT MARKETS
4.1.     Parties' activities
(8)      TCCC owns or licences and markets about 500 non-alcoholic ready-to-drink
         commercial beverage brands, which can be grouped into the following category
         clusters: sparkling soft drinks; water; enhanced water and sports drinks; juice,
         dairy and plant based beverages; and ready-to-drink tea and coffee.7 8
(9)      TCCC also owns Chaqwa, a branded hot beverage vending business. TCCC's
         bottler, Coca-Cola European Partners plc ("CCEP"), owns and operates the
         machines using product and marketing support supplied by and brand and
         trademarks licensed from TCCC. Chaqwa machines predominantly dispense hot
         coffee but also serve other hot beverages (tea and hot chocolate). The Chaqwa
         machines are currently only supplied in Germany, Belgium, Norway, Sweden and
         Iceland.9
(10)     Through the proposed Transaction, TCCC will be adding to its portfolio the
         following products:
         – Costa's coffee shops, mainly in the UK, Ireland and Poland.
         – Costa's Proud to Serve ("PtS") products, a suite of ingredients and branded
             accessories required for a customer to recreate the Costa products out-of-home,
             such as hospitals, universities, petrol stations and leisure venues.10 PtS
             products are currently marketed only in the UK and Ireland.
         – Costa's R&G coffee and Tassimo discs.11 Both products are targeted ultimately
             toward end customers for use at home. These products are marketed only in the
             UK and Ireland.12
         – Costa Express machines, i.e. self-serve hot beverage vending machines located
             at Costa's partners' premises. Costa operates [8,000 - 8,250] Costa Express
             machines worldwide, including [7,750 - 8,000] in the EEA, the overwhelming
             majority of which are in the UK.
7   Form CO, paragraph 70.
8   TCCC's non-alcoholic ready-to-drink commercial beverages (NABs) portfolio also includes a ready-
    to-drink coffee, marketed under the Honest brand in the UK and Spain. Moreover, TCCC has a
    licensing agreement with Illy, […]. The main flavours are Illy Caffe Latte, Illy Caffe Vanilla Affogato,
    Illy Issimo Cafe Espresso, Illy Issimo Caffe Tiramisu and Illy Issimo Latte Macchiato. These are only
    sold in Cyprus, Czech Republic, Greece, Romania, Slovakia and Slovenia. Given that these are non-
    carbonated drinks, sold in aluminium cans and PET bottles at ambient or cold temperature, the
    Commission considers that these products do not lead to a horizontal overlap with Costa products.
9   Form CO, paragraphs 80-86.
10  PtS includes various coffee ingredients (beans, ground and filter coffee), takeaway cups and lids,
    porcelain cups, saucers and glasses, scoops, beakers, thermometers and other coffee-making
    equipment, snacks, and cleaning products.
11  Tassimo discs are designed for use within compatible espresso coffee machines. R&G coffee is also
    designed for consumption at home (but does not require an espresso machine). […].
12  Costa also manufactures […] of R&G retail packs […], which it sells through its own stores in the UK
    and in a number of other EEA countries.
                                                        3
 ---pagebreak--- 4.2.    Relevant product market definitions
(11)    The Transaction leads to:
        (a)       Vertical links between the supply by TCCC of non-alcoholic ready-to-
                  drink commercial beverages ("NABs") and Costa's coffee shops; and
        (b)       Conglomerate links between TCCC's NABs and Costa's PtS products,
                  R&G coffee and Tassimo discs as well as Express machines described at
                  paragraph (10) above.
(12)    The Transaction may also give raise to limited horizontal overlaps, which in any
        event do not result in horizontally affected markets.13 Therefore, these links will
        not further be discussed in the present decision.
4.2.1. Supply of non-alcoholic ready-to-drink commercial beverages ("NABs")
        Brand ownership and bottling
(13)    Commission precedents14 described the supply of NABs as consisting of two
        interrelated activities: namely brand ownership upstream and bottling
        downstream:
               (a)     Brand ownership typically involves the creation and support of
                       brands, the supply of beverage concentrate, and the authorisation of
                       local bottlers to prepare, package, distribute and sell the beverages.
                       Brand owners usually have primary responsibility for consumer
                       marketing such as television, radio, cinema, and press advertising, as
                       well as sponsorship of activities such as music and sports.
               (b)     Bottling typically involves preparing, packaging, selling, marketing,
                       and distributing the final product in a territory assigned by the brand
                       owner. Bottlers generally have operational responsibility for
                       marketing closer to the retail level, including promotional discounts
                       and trade marketing. Such efforts are closely coordinated with the
                       brand owner's marketing and support activities. In case of TCCC,
                       authorised bottlers either combine the concentrates with sweeteners
                       (depending on the product), still water and/or sparkling water, or
                       combine the syrups with sparkling water to produce finished
                       beverages. The finished beverages are packaged in authorised
                       containers bearing TCCC's trademarks and are then sold mainly to
                       retailers directly or, in some cases, through wholesalers and
                       distributors.
13  Both TCCC and Costa overlap in vending services for hot beverages at the national level in Germany.
    However, this does not lead to affected markets as TCCC share is ca. [5-10]% and Costa has only [15-
    20] Costa Express machines in Germany.
14  See, e.g., Case IV/M.794 - Coca-Cola/Amalgamated Beverages GB, paragraph 23; Case IV/M.833 -
    TCCC/Carlsberg A/S, paragraphs 25-30; Case COMP/M.1683 - The Coca-Cola Company/Kar-Tess
    Group (Hellenic Bottling), paragraphs 11-12; Case COMP/M.5632 - PepsiCo/Pepsi Americas,
    paragraph 9; Case COMP/M.5633 - PepsiCo/The PepsiCo Bottling Group, paragraph 8, Case M.7763
    – TCCC/COBEGA/CCEP.
                                                        4
 ---pagebreak--- (14)   Bottlers operate in different EEA countries on the basis of their agreements with
       TCCC, which confer them with an […] licence to market, distribute, bottle and
       sell TCCC branded beverages in their respective territories.
(15)   On the markets affected by the present transaction, TCCC […] and maintains that
       bottlers are operationally independent from TCCC. However, many aspects of the
       bottlers’ operations, such as marketing decisions, are influenced by TCCC. In
       addition, the prices at which concentrate is supplied to bottlers are set by
       reference to, and as a prescribed percentage of, each bottler's wholesale net sales
       prices set by the bottler to its customers, thus reducing the business risk a bottler
       needs to assume on its own.15
(16)   In addition, certain finished products ([…]) and large and international accounts
       are directly managed by TCCC and not through the bottlers.
(17)   Therefore, the full independence of the bottlers’ businesses form TCCC’s cannot
       be established with certainty.
(18)   In view of the above and ,taking a precautionary approach, the Commission
       considers that TCCC's market position should be assessed also including the sales
       of its products through the bottlers.
       Segmentation by type of NAB
(19)   In previous decisions, the Commission has considered that, within NABs,
       carbonated soft drinks (“CSDs”) constitute a separate market from non-
       carbonated soft drinks (NCSDs).16 In particular, the Commission has previously
       considered a narrower market segmentation for cola-flavoured CSDs.17 In its past
       decisional practice the Commission also indicated that NCSDs could be
       segmented into packaged water, fruit juices, ready-to-drink teas and energy and
       sports drinks, although ultimately left the question on such segmentation open.18
(20)   Given the absence of any material horizontal overlaps between the operations of
       the Parties, the Parties do not consider it necessary to reach a definitive view on
       the scope of the relevant product market.
(21)   The Commission considers that, for the purpose of this decision, the exact scope
       of the product market can be left open since the Transaction does not give rise to
       serious doubts about its compatibility with the internal market even under the
       strictest plausible definition of the product market (i.e. the Coca Cola branded
       products).
15 TCCC calls this pricing model towards bottlers "incidence pricing".
16 Case M.5633 - Pepsico/The Pepsico Bottling Group, paragraphs 10-12; Case M.833 - The Coca-Cola
   Company/Carlsberg A/S, paragraph 42; Case M.2276 - The Coca-Cola Company/Nestle/JV, paragraph
   17; Case M.6924 - Refresco Group/ Pride Foods, paragraph 15.
17 Case IV/M.1065 – Nestle/San Pelegrino, paragraph 17; Case IV/M.794 – Coca-Cola/Amalgamated
   Beverages GB, paragraphs 26, 30-94; M.2504 – Cadbury Schweppes/Pernod Ricard, paragraphs 10.
18 Case M.2276 - The Coca-Cola Company/Nestle/JV, paragraph 17; Case M.6924 - Refresco
   Group/Pride Foods, paragraph 16.
                                                       5
 ---pagebreak---         Segmentation by distribution channel
(22)    Previous Commission’s decisions considered separate product markets according
        to the distribution channel of NABs distinguishing between the off-premises
        (retail) and the on-premises consumption market (including, for example, hotels,
        restaurants, and cafes, known as the"HoReCa" sector).19
(23)    Respondents to the market investigation confirmed the Commission's findings in
        previous cases.20 Therefore, the Commission considers that the effects of the
        Transaction should be assessed on the two separate product markets for the off-
        premises channel and the on-premises one.
4.2.2. Operation of coffee shops/informal restaurants
(24)    The Commission has not previously defined a relevant product market for the
        operation of coffee shops specifically, but previous cases indicated that coffee
        shops are part of a market for informal restaurants.21 Precedents involving fast
        food restaurants investigated whether a further segmentation of informal
        restaurants into "informal restaurants", "informal eating-out restaurants" or "eat-in
        quick-service restaurants", "(chained) quick service restaurants" and "take
        away/home delivery" was necessary.22
(25)    The Notifying Party submits that branded coffee shops, such as Costa, face
        competition also from independent coffee shops, fast food (quick service)
        restaurants and other casual dining restaurants that serve hot beverages.
        Therefore, according to the Notifying Party, the market could be wider than
        coffee shops alone.
19   Case M.2504 – Cadbury Schweppes/Pernod Ricard, paragraphs 7-14.
20   See replies to Q5 of the Questionnaire to competitors and of the Questionnaire to customers.
21   Case M.4220 – Food Service Project/Tele Pizza, paragraphs 7-13. Informal restaurants” include
     quick-service restaurants, plus a wide selection of chained and independent informal restaurants,
     pizzerias, cafes, coffee shops, sandwich bars as well as take-away and home delivery outlets..
22   Cases COMP/M.2940 – TPG Advisors III/Goldman Sachs/Bain Capital Investors/Burger King,
     paragraphs 12-23; COMP/M.4220 – Food Service Project/Tele Pizza, paragraphs 7-13; and
     COMP/M.6895 – 3G Special Situations Fund III/ Berkshire Hathaway/ H J Heinz Company,
     paragraphs 21-23.
                                                         6
 ---pagebreak--- (26)    The Commission's market investigation provided a number of indications that
        coffee shops do compete with informal restaurants23, while the answers as to
        whether branded coffee shops competed with the unbranded ones were less
        conclusive.24
(27)    The Commission considers that, for the purposes of this decision, the exact scope
        of the relevant product market can be left open in this respect since the
        Transaction does not give rise to serious doubts as to its compatibility with the
        internal market even under the strictest plausible definition of the product market
        (i.e., branded coffee shops).
4.2.3. Provision of vending services (vending machines)
(28)    The Commission has previously considered the provision of vending services, but
        left open the question of whether the market should be further segmented by the
        type of food dispensed in (i) hot beverages, (ii) cold drinks and (iii) snacks and
        food.25
(29)    The Notifying Party considers that for the purposes of the present Transaction, the
        relevant market in respect of coffee vending machines should be that for the
        provision of vending services, i.e. the sale of products and services at an
        unattended point of sale, using some form of payment.26
(30)    Respondents to the market investigation confirmed the Commission's description
        of this products in previous cases,27 but were not definitive as to a segmentation
        of vending services by type of beverage/food as well as by type of distribution
        machine, such as, for example, vending machines, beverage machines used in
        hotels, restaurants or cafeterias and small capacity machines without payment
        system designed for office coffee supply.28
(31)    The Commission considers that, for the purpose of this decision, the exact scope
        of the product market can be left open since the Transaction does not give rise to
        serious doubts about its compatibility with the internal market even under the
        strictest plausible definition of the product market (i.e., vending services for hot
        beverages only).
4.2.4. Manufacture and sale of coffee and other ingredients
(32)    In previous decisions, the Commission has considered that the manufacture and
        sale of coffee via the "in-home" and "out-of-home" channels form part of separate
        product markets. In-home encompasses the sale of coffee to consumers via
        retailers or directly to consumers. Out-of-home encompasses the sale of coffee to
23  See replies to Q8 of the Questionnaire to competitors and of the Questionnaire to customers.
24  See replies to Q9 of the Questionnaire to competitors and of the Questionnaire to customers.
25  Case M.8454 – KRR/Pelican Rouge; Case M.6857 – Crace Co/MEI Group.
26  Form CO, paragraph 116.
27  See replies to Q6 of the Questionnaire to competitors and of the Questionnaire to customers.
28  See replies to Q7 of the Questionnaire to competitors and of the Questionnaire to customers.
                                                        7
 ---pagebreak---          hotels, restaurants or cafes (referred to as "HoReCa") but also to offices,
         hospitals, educational establishments and other work places.29
(33)     The Commission has also considered that all out-of-home sales belong to the
         same product market.30 Conversely, the Commission has segmented the in-home
         channel into (i) instant coffee, (ii) R&G coffee, (iii) filter pads, (iv) Nespresso
         compatible capsules, (v) other espresso capsules, and (vi) multi-drink capsules.31
(34)     The Commission also considered whether R&G coffee in-home was in the same
         market as whole coffee beans, but ultimately left open the precise product market
         definition in this respect.32
(35)     The Notifying Party does not disagree with the Commission's findings in previous
         cases.33
(36)     The Commission considers that, for the purpose of this decision, the exact scope
         of the relevant product market can be left open since the Transaction does not
         give rise to serious doubts as to its compatibility with the internal market even
         under the strictest plausible definition of the relevant product market
         (manufacture and sale of coffee and other ingredients in the out-of-home channel;
         manufacture and sale of R&G coffee only and Tassimo discs only34, both in the
         in-home channel).
4.3.     Geographic market definitions
4.3.1. Supply of non-alcoholic ready-to-drink commercial beverages ("NABs")
(37)     The Commission has consistently found that the geographic scope of the supply
         of NABs is national due to, inter alia, differences in consumption patterns,
         logistics and distribution networks and marketing strategies.35
(38)     The Notifying Party agrees with this geographic scope.36
(39)     Respondents to the market investigation confirmed the Commission's findings in
         previous cases.37
29  Case M.7292 - DEMB/Mondelez/Charger OPCO, paragraph 43.
30  Case M.7292 - DEMB/Mondelez/Charger OPCO, paragraph 44.
31  Case M.7292 - DEMB/Mondelez/Charger OPCO, paragraph 103, paragraph 107, paragraph 112,
    paragraph 123, paragraph 136 and paragraph 151.
32  Case M.7292 - DEMB/Mondelez/Charger OPCO, paragraph 136.
33  Form CO, paragraph 122.
34  Case M.7292 - DEMB/Mondelez/Charger OPCO, paragraph 92. In this case the Commission
    concluded that consumables for the various single-serve systems, such as the Tassimo system, belong
    to different markets.
35  Case M.2276 – The Coca-Cola Company/Nestlé/JV, paragraph 23
36  Form CO, paragraph 111.
37  See replies to Q10 of the Questionnaire to competitors and of the Questionnaire to customers.
                                                        8
 ---pagebreak--- (40)    Based on the above, the Commission will conduct its assessment of the markets
        for NABs on a national basis.
4.3.2. Operation of coffee shops/informal restaurants
(41)    As concerns the market for informal restaurants, Commission precedents
        considered its geographic scope to be at least national, leaving the precise market
        definition open.38
(42)    The Notifying Party submits that also for coffee shops the relevant geographic
        market should be considered national, as in particular price and product ranges of
        branded chains are typically determined on a national basis. This is also the case
        for Costa's equity stores.39
(43)    The market investigation was not conclusive as to the exact scope of the
        geographic market.40
(44)    The Commission considers that, for the purpose of this decision, the exact scope
        of the geographic market can be left open since the Transaction does not give rise
        to serious doubts about its compatibility with the internal market even under the
        strictest plausible definition of the geographic market (national).
4.3.3. Provision of vending services (vending machines)
(45)    The Commission has in the past found that the relevant geographic markets for
        the provision of vending services in general are national in scope due to the
        absence of EU-wide legislation for the vending industry, the difference in lifestyle
        and culture between the various European countries and the need for having
        teams of staff (machine engineers, stockists, operators) available in reasonable
        proximity.41
(46)    The Notifying Party therefore submits it would be appropriate to examine the
        Proposed Transaction by reference to national geographic markets.42
(47)    Respondents to the market investigation confirmed the Commission's findings in
        previous cases that the geographic scope of this market is national.43
(48)    The Commission considers that, for the purpose of this decision, the exact scope
        of the geographic market can be left open since the Transaction does not give rise
        to serious doubts about its compatibility with the internal market even under the
        strictest plausible definition of the geographic market (national).
38  Case M.4220 – Food Service Project/Tele Pizza, paragraphs 14-17; Case No COMP/M.6895 - 3G
    Special Situations Fund III/Berkshire Hathaway/H J Heinz Company, paragraphs 24-25.
39  Form CO, paragraph 99.
40  See replies to Q12 of the Questionnaire to competitors and of the Questionnaire to customers.
41  Case M.8454 – KRR/Pelican Rouge, paragraphs 17-19.
42  Form CO, paragraph 118.
43  See replies to Q11 of the Questionnaire to competitors and of the Questionnaire to customers.
                                                        9
 ---pagebreak--- 4.3.4. Manufacture and sale of coffee and other ingredients
(49)    The Commission has determined in previous cases that the geographic scope for
        the markets for the supply of various types of coffee is national.44 This conclusion
        was reached on the basis of (i) the high importance of national brands; (ii) the
        presence of national differences in terms of consumption by consumers; (iii) the
        divergence in market shares of the relevant suppliers in the different Member
        States; (iv) the fact that negotiations with retailers regarding supply and pricing of
        coffee products are national; and (v) the presence of national and regional
        competitors.
(50)    The Commission has not found evidence to contradict its previous findings in this
        respect and will therefore conduct its assessment on a national basis.
5.      COMPETITIVE ASSESSMENT
5.1.    Framework of analysis
(51)    Article 2 of the Merger Regulation provides that the Commission has to appraise
        concentrations with a view to establishing whether or not they are compatible
        with the internal market. For that purpose, the Commission must assess, pursuant
        to Article 2(2) and (3), whether or not a concentration would significantly impede
        effective competition, in particular as a result of the creation or strengthening of a
        dominant position in the common market or a substantial part of it.
(52)    The Commission’s assessment of this Transaction focuses on (i) vertical non-
        coordinated effects due to the creation of vertical links between the Parties as well
        as (ii) conglomerate non-coordinated effects due to the combination of TCCC's
        products with Costa's.
        Vertical non-coordinated effects
(53)    Vertical mergers involve companies operating at different levels of the same
        supply chain. For instance, a vertical merger occurs when a manufacturer of a
        certain product merges with one of its distributors.
(54)    Pursuant to the Commission Guidelines on the assessment of non-horizontal
        mergers under the Merger Regulation (the “Non-Horizontal Merger
        Guidelines”)45, vertical mergers do not entail the loss of direct competition
        between merging firms in the same relevant market and provide scope for
        efficiencies.46
(55)    However, there are circumstances in which vertical mergers may significantly
        impede effective competition. This is in particular the case if they give rise to
        foreclosure.47
44  Case M.7292 - DEMB/Mondelez/Charger OPCO, paragraph 157.
45  OJ C 265, 18.10.2008, p. 6.
46  Non-Horizontal Merger Guidelines, paragraph 13.
47  Non-Horizontal Merger Guidelines, paragraph 18.
                                                    10
 ---pagebreak--- (56)  The Non-Horizontal Merger Guidelines distinguish between two forms of
      foreclosure: input foreclosure, which arises where the merger is likely to raise
      costs of downstream rivals by restricting their access to an important input, and
      customer foreclosure, which exists where the merger is likely to foreclose
      upstream rivals by restricting their access to a sufficient customer base.48
(57)  Pursuant to the Non-Horizontal Merger Guidelines, input foreclosure arises
      where, post-merger, the new entity would be likely to restrict access to the
      products or services that it would have otherwise supplied absent the merger,
      thereby raising its downstream rivals' costs by making it harder for them to obtain
      supplies of the input under similar prices and conditions as absent the merger.49
(58)  For input foreclosure to be a concern, the merged entity should have a significant
      degree of market power in the upstream market. Only when the merged entity has
      such a significant degree of market power, can it be expected that it will
      significantly influence the conditions of competition in the upstream market and
      thus, possibly, the prices and supply conditions in the downstream market.50
(59)  Pursuant to the Non-Horizontal Merger Guidelines, customer foreclosure may
      occur when a supplier integrates with an important customer in the downstream
      market and because of this downstream presence, the merged entity may foreclose
      access to a sufficient customer base to its actual or potential rivals in the upstream
      market (the input market) and reduce their ability or incentive to compete, which,
      in turn, may raise downstream rivals' costs by making it harder for them to obtain
      supplies of the input under similar prices and conditions as absent the merger.
      This may allow the merged entity to profitably establish higher prices on the
      downstream market.51
(60)  For customer foreclosure to be a concern, a vertical merger must involve a
      company which is an important customer with a significant degree of market
      power in the downstream market. If, on the contrary, there is a sufficiently large
      customer base, at present or in the future, that is likely to turn to independent
      suppliers, the Commission is unlikely to raise competition concerns on that
      ground.52
      Conglomerate non-coordinated effects
(61)  Conglomerate mergers consist of mergers between companies that are active in
      closely related markets, for instance suppliers of complementary products or of
      products which belong to a range of products that is generally purchased by the
      same set of customers for the same end use.53
48 Non-Horizontal Merger Guidelines, paragraph 30.
49 Non-Horizontal Merger Guidelines, paragraph 31.
50 Non-Horizontal Merger Guidelines, paragraph 35.
51 Non-Horizontal Merger Guidelines, paragraph 58.
52 Non-Horizontal Merger Guidelines, paragraph 61.
53 Non-Horizontal Merger Guidelines, paragraph 91.
                                                   11
 ---pagebreak--- (62)  Pursuant to the Non-Horizontal Merger Guidelines, in most circumstances,
      conglomerate mergers do not lead to any competition problems.54 However,
      foreclosure effects may arise when the combination of products in related markets
      may confer on the merged entity the ability and incentive to leverage a strong
      market position from one market to another closely related market by means of
      tying or bundling or other exclusionary practices.55
(63)  The Non-Horizontal Merger Guidelines distinguish between bundling, which
      usually refers to the way products are offered and priced by the merged entity and
      tying, which usually refers to situations where customers that purchase one good
      (the tying good) are required to also purchase another good from the producer
      (the tied good).56
(64)  Within bundling practices, a distinction is also made between pure bundling and
      mixed bundling. In the case of pure bundling the products are only sold jointly in
      fixed proportions. With mixed bundling the products are also available separately,
      but the sum of the stand-alone prices is higher than the bundled price.57
(65)  Tying can take place on a technical or contractual basis. For instance, technical
      tying occurs when the tying product is designed in such a way that it only works
      with the tied product (and not with the alternatives offered by competitors).
(66)  While tying and bundling have often no anticompetitive consequences, in certain
      circumstances such practices may lead to a reduction in actual or potential
      competitors' ability or incentive to compete. This may reduce the competitive
      pressure on the merged entity allowing it to increase prices or deteriorate supply
      conditions in other ways.58
(67)  In assessing the likelihood of such a scenario, the Commission examines, first,
      whether the merged firm would have the ability to foreclose its rivals59, second,
      whether it would have the economic incentive to do so60 and, third, whether a
      foreclosure strategy would have a significant detrimental effect on competition,
      thus causing harm to consumers.61 In practice, these factors are often examined
      together as they are closely intertwined.
54 Non-Horizontal Merger Guidelines, paragraph 92.
55 Non-Horizontal Merger Guidelines, paragraph 93.
56 Non-Horizontal Merger Guidelines, paragraph 97.
57 Non-Horizontal Merger Guidelines, paragraph 96.
58 Non-Horizontal Merger Guidelines, paragraph 93.
59 Non-Horizontal Merger Guidelines, paragraphs 95 to 104.
60 Non-Horizontal Merger Guidelines, paragraphs 105 to 110.
61 Non-Horizontal Merger Guidelines, paragraphs 111 to 118.
                                                    12
 ---pagebreak---      5.2.     Market shares
     (68)     As regards TCCC’s market share in selling NABs in the on-premise channel
              upstream, TCCC would have more than 40% of the CSD market in the UK,
              Ireland and Poland based on the Notifying Party's estimates, as illustrated by
              Table 1 below. The […] of these market shares is represented by Coca-Cola
              branded products.
     (69)     In the off-premise market TCCC's share in selling NABs is above 50% in the UK
              and Ireland and [40-50]% in Poland. As in the on-premise channel, the […] these
              market shares is represented by Coca-Cola branded products.
     (70)     Table 1 also shows TCCC’s market share in juices as well as in vending services
              for cold drinks. The share of TCCC in juices is below 30% in both the on-premise
              and off-premise channels in each of the three countries considered. The share of
              TCCC cold drinks vending services is estimated at less than [10-20]% in the UK
              and Poland and less than [30-40]% in Ireland.
     Table 1: TCCC's market shares in NABs/cold drinks by channel, 2017
                   On-premise                    Off-premise                   Juices
                            Of which                     Of which         On-          Off-
                                                                                                   Cold drinks
                              Coca-                         Coca-      premise       premise
                                                                                                vending services
                CSD            Cola           CSD           Cola          (%)           (%)
                                                                                                       (%)
               (%)62         branded           (%)        branded
                             products                     products
                                (%)                          (%)
UK            [40-50]        [30-40]         [50-60]      [30-40]       [20-30]      [10-20]        < [10-20]
Ireland       [60-70]        [50-60]         [50-60]      [40-50]       [20-30]      [10-20]        < [30-40]
Poland        [40-50]        [30-40]         [30-40]      [30-40]        [5-10]        [0-5]        < [10-20]
     Source: Form CO
     (71)     As regards Costa’s market share in operating coffee shops downstream, Table 2
              below shows the number and the share of Costa's branded coffee shops in the UK,
              Ireland and Poland, by number of shops for 2017. If independent coffee shops
              where included in the relevant market, the Costa's share is would be reduced
              sizeably.63
     (72)     Table 2 also shows Costa's market shares for the other three lines of Costa's
              products, namely Costa Express vending machines, PtS and R&G and Tassimo
              discs in 2017 in the national markets where Costa is present.
     62  TCCC's share NCDS is [10-20]% in the UK and less than [5-10]% in Ireland and Poland.
     63  For example, including independents and non-specialist operators would increase the total market size
         to around 24,061 stores in the UK for 2017 (an increase from around 7,476 of branded coffee shops),
         resulting in Costa's share of all coffee shops in the UK being approximately [10-20]%.
                                                                13
 ---pagebreak--- Table 2: Costa's coffee shops shares by store numbers, 2017
                                                  Costa                                              Tassimo
                                                                 PtS (out-
                    Store          Share         Express                          R&G (in-          discs (in-
                                                                 of-home)
                 numbers            (%)        machines                          home) (%)            home)
                                                                    (%)
                                                   (%)                                                 (%)
UK              [2,250-2,500]     [30-40]        [10-20]         [20-30]*            [0-5]            [5-10]
Ireland         [100-125]         [10-20]        [10-20]          N/A**                -                 -
Poland          [125-150]         [10-20]        [10-20]             -                 -                 -
Notes: * Outlets selling Costa PtS products as a share of all “non-specialist” coffee outlets in the UK;
         ** sales of PtS in Ireland in 2017-2018 amounted to £[…].
Source: Form CO and Reply to RFI 4 of 13 November 2018.
5.3.     Assessment of vertical non-coordinated effects
(73)     Vertically affected markets arise in the UK, Ireland and Poland between TCCC's
         upstream supply of CSDs and juices for on-premises consumption and Costa's
         downstream operations of informal restaurants (coffee shops) in these countries.
         No input foreclosure effects
(74)     The Notifying Party submits that: (1) TCCC does not have the ability to foreclose
         NAB products to Costa's competitors, as ([…]) the informal restaurants (including
         coffee shops) generally purchase TCCC products from TCCC's Bottlers or from
         wholesalers/distributors, and (2) TCCC's Bottlers are operationally independent.64
(75)     The Notifying Party also submits that TCCC does not have an incentive to
         foreclose NAB products to Costa's competitors. In the UK, TCCC's sale of NABs
         to Costa account for […] of its revenues as opposed to TCCC's sales to Costa's
         competitors that could be lost through input foreclosure. Therefore, according to
         the Notifying Party, an input foreclosure strategy by TCCC would not to be
         profitable.65
(76)     The Notifying Party further explains that NABs are not an important input or core
         product for Costa that would drive demand, and they are not required for Costa to
         compete with other coffee shops. For instance, the sale of TCCC's NABs
         contributes only to [0-5]% of Costa's sales.66
(77)     The market investigation provided broad support to the Parties' arguments.
         Although TCCC is one of the leading suppliers of CSDs, the Transaction would
         be unlikely to significantly impact the market structure, since several suppliers of
         CSDs will remain available on the market such as: PepsiCo ([30-40]%), A G Barr
64  Form CO, paragraphs 130-131.
65  Form CO, paragraph 132.
66  Form CO, paragraph 131.
                                                         14
 ---pagebreak---        ([5-10]%) and Britvic ([5-10]%) in the UK; PepsiCo ([20-30]%) and Britvic
       ([5-10]%) in Ireland; and PepsiCo ([30-40]%) in Poland.
(78)   In addition, a key competitor of Costa's coffee shops explained that, other than
       limited purchases from Innocent juices, which is a TCCC affiliate, it does not buy
       any other TCCC products (including Coca Cola).67 This suggests that TCCC
       branded NABs may not be necessary for Costa's competitors in order to
       successfully compete. Therefore, even if TCCC foreclosed its branded NABs to
       other coffee shops, this would likely have no impact on competition on the market
       for informal restaurants including coffee shops.
(79)   Moreover, the Commission's investigation also showed that a possible input
       foreclosing strategy would potentially be unprofitable as Costa's coffee shops
       account for only a limited portion of TCCC total sales of NABs. Therefore, any
       losses incurred to TCCC by foreclosing NABs to Costa’s competitors would not
       be compensated by increased turnover at Costa’s.
(80)   Finally, in the course of the market investigation, no substantiated concerns were
       raised by market participants as to the impact of the transaction on their
       businesses or on the market.68
(81)   In light of the above and the evidence available to the Commission and in view of
       the outcome of the market investigation, it appears unlikely that the Parties would
       have the ability and/or incentive to engage in an input foreclosure strategy after
       the Transaction.
       No customer foreclosure effects
(82)   The Notifying Party explains that Costa would have neither the ability nor the
       incentive to foreclose TCCC's competitors in the upstream market for the supply
       of NABs. Although Costa is the largest branded coffee shop chain operator in the
       UK, Costa is a relatively minor distribution channel for suppliers of NABs.69
(83)   The Notifying Party also submits that any such attempt to foreclose would not
       materially affect the upstream competitors' business, whereas it could negatively
       affect Costa, since for the success of its own business it has an interest to choose
       its NABs’ offering on the basis of their appeal to customers, regardless of their
       origin.70
(84)   The market investigation provided broad support to the Parties' arguments.
       Although Costa is the largest branded coffee shop chain operator in the UK, with
       [2,250 – 2,500] stores, including franchise shops (and [30-40]% market share),
       followed by Starbucks, [750-1,000] shops ([10-20]%) and Caffè Nero, [250-500]
       shops ([5-10]%), Costa still represents a minor distribution channel for suppliers
67 See replies to Q3.1 of the Questionnaire to competitors.
68 See replies to Q28-Q30 of the Questionnaire to competitors and replies to Q23-Q25 of the
   Questionnaire to competitors.
69 Form CO, paragraph 134-135.
70 Form CO, paragraph 137.
                                                       15
 ---pagebreak---          of NABs.71 This suggests that, should TCCC decide to foreclose its competitors
         from Costa, TCCC's competitors will retain access to the vast majority of the
         downstream market.
(85)     Moreover, in the course of the market investigation, no substantiated concerns
         were raised by market partipants as to the impact of the transaction on their
         businesses or on the market.72
(86)     In light of the above and the evidence available to the Commission and in view of
         the outcome of the market investigation, it appears unlikely that the Parties would
         have the ability and/or incentive to engage in a customer foreclosure strategy after
         the Transaction.
5.4.     Assessment of conglomerate non-coordinated effects
(87)     The Transaction leads to conglomerate links between:
         (a)      TCCC's NABs (and Coca-Cola products specifically) and Costa’s PtS
                  products which are sold to customers for on-premise/out-of-home
                  consumption,
         (b)      TCCC's NABs (and Coca-Cola products specifically) and Costa’s Tassimo
                  discs and R&G products which are sold to retailers for off-premise/in-
                  home consumption, and
         (c)      TCCC's cold drinks vending services (including Coca-Cola products
                  specifically) and Costa’s Express machines which are sold to customers
                  who have vending machines on their premises, such as large supermarkets,
                  hotel chains, restaurants and large corporate organizations.73
(88)     The Commission’s assessment of conglomerate non-coordinated effects therefore
         focusses on:
         (a)      the potential leveraging of TCCC’s position in NABs/Coca-Cola for on
                  premise/out-of-home consumption in the UK and Ireland to foreclose
                  Costa’s on-premise/out-of-home coffee competitors in the same
                  countries;74
71  In this regard, the Notifying Party submits that in any case the off-premises sales of NABs are almost
    10 times as high as all on-premises sales channels together in the UK.
72  See replies to Q28-Q30 of the Questionnaire to competitors and replies to Q23-Q25 of the
    Questionnaire to competitors.
73  See reply to Request for Information of 27 November 2018.
74  In relation to a possible leveraging from Costa to TCCC, Costa does not seem to have the ability to
    leverage its position in PtS for lack of market power as illustrated by its low market shares as set out in
    Table 2.
                                                         16
 ---pagebreak---           (b)      the potential leveraging of TCCC’s position in NABs/Coca-Cola off
                   premise/retail in the UK and Ireland to foreclose in-home coffee
                   competitors in the same countries;75 and
          (c)      the potential leveraging of TCCC’s position in cold drinks vending
                   services/Coca-Cola in the UK, Ireland and Poland to foreclose competitors
                   in vending services (vending machines) in the same countries.76
          Leveraging of TCCC’s position in NABs/Coca-Cola on premises (out-of-
          home) in the UK and Ireland to foreclose out-of-home coffee competitors in
          the same countries
(89)      The Notifying Party submits that TCCC does not have the ability to bundle or tie
          or otherwise condition its sale of Coca-Cola products in the on-premise/out-of-
          home sales channel on the purchase of Costa's products, as customers, if they
          purchase both, purchase NABs and coffee products separately.77
(90)      The Notifying Party further argues that both businesses (TCCC’s and Costa’s) are
          operated by independent companies: the sale of TCCCs products is carried out
          through […] bottlers and a bundling strategy could jeopardise their NAB sales.78
(91)      In addition, the Notifying Party submits that many large TCCC on-premises
          customers (e.g. fast food chains) have a clear preference for unbranded coffee and
          have sufficient bargaining power to resist any bundling strategy.79
(92)      The Notifying Party also submits that TCCC does not have the incentive to
          engage in a bundling or tying strategy, as the turnover that can be achieved
          through the sales of PtS products is far inferior compared to the significance of
          the TCCC NAB business.80
(93)      In any event, the Notifying Party is of the view that such a bundling strategy
          would not have an effect on the market.81
(94)      The market investigation provided broad support to the Notifying Party's
          arguments. While acknowledging that TCCC holds a strong market position in
          NABs with brands that are considered to be particularly important, the majority of
          customers who responded to the Commission's market investigation indicated that
          NABs and coffee products, such as Costa’s PtS, are generally purchased
          separately by on-premises/out-of-home customers and are typically not part of the
75   In relation to a possible leveraging from Costa to TCCC, Costa does not seem to have the ability to
     leverage its position in R&G and Tassimo discs for lack of market power as illustrated by its low
     market shares as set out in Table 2.
76 In relation to a possible leveraging from Costa to TCCC, Costa does not seem to have the ability to
     leverage its position in vending services (Costa Express) for lack of market power as illustrated by its
     low market shares as set out in Table 2.
77   Form CO, paragraph 140.
78   Form CO, paragraph 140.
79   Form CO, paragraph 140(c).
80   Form CO, paragraph 142.
81   Form CO, paragraph 143.
                                                        17
 ---pagebreak---        same buying decision.82 To this end one customer noted that "For hot coffee then
       there is no cross over of decision making and the decision is entirely separate
       from NAB".83
(95)   When asked how customers would react to a hypothical tie/bundle of TCCC's
       NABs with Costa's PtS products, some customers answered that they would not
       accept such link between the products/purchasing decisions, that such strategy
       would even be counter productive and that it would have very limited effects.84
       To this end, one customer observed that "As of today the two markets are
       considered not linked and remain separate, maybe we will not see any relevant
       effect in these markets".85
(96)   More generally, TCCC/Costa’s customers raised no substantiated concerns as to
       the impact of the transaction on their businesses or on the market.86
(97)   In light of the above and the evidence available to the Commission and in view of
       the outcome of the market investigation, it appears unlikely that the Transaction
       would significantly impede effective competition in the market for the
       manufacture and sale of coffee and other ingredients in the out-of-home channel
       in the UK and Ireland as a result of conglomerate non-coordinated effects
       deriving from the leveraging of TCCC’s position in NABs/Coca-Cola in the on-
       premises/out-of-home channel in the same countries.
       Leveraging of TCCC’s position in NABs/Coca-Cola in the off-premise/retail
       channel in the UK and Ireland to foreclose in-home coffee competitors in the
       same countries
(98)   The Notifying Party submits that TCCC does not have the ability to bundle or tie
       or otherwise condition its sale of Coca-Cola products on the purchase of Costa's
       products, as off-premises/retail customers, such as supermarkets, purchase NABs
       and coffee products separately, in the context of separate purchasing decisions.87
(99)   The Notifying Party adds that many of the Parties' competitors are also in a
       position to offer such bundles, either through their existing product portfolios or
       through teaming up, if they wanted to, and that therefore competition can also
       take place at the level of the bundle.88
(100) The Notifying Party argues that off-premises customers are large, with significant
       bargaining power and could counter any bundling strategy by TCCC.89
82 See replies to Q23 of the Questionnaire to customers.
83 See replies to Q23.1 of the Questionnaire to customers.
84 See replies to Q29 of the Questionnaire to customers.
85 See replies to Q29.2 of the Questionnaire to customers.
86 See replies to Q28-Q30 of the Questionnaire to customers.
87 Form CO, paragraph 144 (c).
88 Form CO, paragraph 144 (a).
89 Form CO, paragraph 144(b).
                                                      18
 ---pagebreak--- (101) The Notifying Party also reasons that TCCC does not have an incentive to pursue
       a commercially hazardous strategy in the off-premises channel, as it represents a
       critically important sales channel, […] times larger than the on-premises
       channel.90
(102) The Notifying Party is of the view that, in any event, such a bundling strategy
       would not have an effect on the market.91
(103) The market investigation provided broad support to the Parties' arguments. While
       acknowledging that TCCC holds a strong market position in NABs with brands
       that are considered to be particularly important, the majority of customers who
       answered the Commission's questionnaire indicated that NABs and coffee
       products are generally purchased separately and are typically not part of the same
       buying decision.92 To this end one leading retail chain noted that "we purchase
       NAB and hot drinks separately from each other".93
(104) When asked how customers would react to a hypothical tie/bundle of TCCC's
       NABs with Costa's coffee, some customers answered that such strategy would
       have very limited effects.94 To this end, one leading retail chain noted that "There
       would be no or very few impacts".95
(105) More generally, TCCC/Costa’s customers raised no substantiated concerns as to
       the impact of the transaction on their businesses or on the market.96
(106) In light of the above and the evidence available to the Commission and in view of
       the outcome of the market investigation, it appears unlikely that the Transaction
       would significantly impede effective competition in the market(s) for the
       manufacture and sale of R&G coffee and Tassimo discs in the in-home channel in
       the UK and Ireland as a result of conglomerate non-coordinated effects deriving
       from the leveraging of TCCC’s position in NABs/Coca-Cola in the off premise
       channel in the same countries.
       Leveraging of TCCC’s position in cold drinks vending services/Coca-Cola or
       supplies of NABs/Coca-Cola in the UK, Ireland and Poland to foreclose
       competitors in vending services (vending machines) in the same countries
(107) The Notifying Party argues that TCCC would not have the ability to bundle or tie
       Costa’s vending machines (the Costa Express) with its own vending machines or
       more in general with its supplies of NABs/Coca-Cola, for the following reasons:
90 Form CO, paragraph 145(a).
91 Form CO, paragraph 146.
92 See replies to Q23 of the Questionnaire to customers.
93 See replies to Q30 of the Questionnaire to customers.
94 See replies to Q29 of the Questionnaire to customers.
95 See replies to Q29.2 of the Questionnaire to customers.
96 See replies to Q28-Q30 of the Questionnaire to customers.
                                                      19
 ---pagebreak--- (108) First, the Notifying Party explains that customers usually take purchasing
        decisions concerning vending machines for NAB and vending machines for
        coffee separately.97
(109) Second, the Notifying Party notes the presence of a large number of competitors
        (e.g. PepsiCo, Britvic, Nespresso, Dolce Gusto, Starbucks, Lavazza and others)
        which would not have any capacity or other constraints preventing them from
        undermining any hypothetical bundling strategy, whether alone or in
        combination.98
(110) Third, TCCC already operates vending machines for coffee, Chaqwa. Therefore,
        the Costa Express vending machines are not a new addition to TCCC's portfolio
        of products.99
(111) Fourth, the Notifying Party argues that the practical ability of TCCC to
        implement any bundling/tying strategy for Costa Express and chilled NAB
        vending machines is limited, as it would require coordination across multiple
        commercially and operationally independent entities.100
(112) The market investigation provided broad support to the Notifying Party's
        arguments. First, the results of the Commission's market investigation show that
        in all the countries where Chaqwa is present, namely Germany, Belgium,
        Norway, Sweden and Iceland, the number of customers that have on their
        premises both TCCC chilled NAB vending machines and Chaqwa machines are
        very limited.101
(113) As a result of this, Chaqwa's share of supply is less than [0-5]% in Germany, and
        is similarly low in the other countries where it is present.102 This suggests that (1)
        TCCC has not been successfull to leverage any potential strength in NABs to
        increase their Chaqwa's share, and (2) TCCC would possibly not have the ability
        to do so with Costa Express. Any hypothetical bundling strategy of Costa Express
        and TCCC's cold drinks vending services/Coca-Cola is therefore unlikely to result
        in foreclosure of TCCC's or Costa's rivals.
(114) More generally, TCCC/Costa’s customers raised no substantiated concerns as to
        the impact of the transaction on their businesses or on the market.103
(115) In light of the above and the evidence available to the Commission and in view of
        the outcome of the market investigation, it appears unlikely that the Transaction
        would significantly impede effective competition in vending services (vending
        machines) in the UK, Ireland and Poland as a result of conglomerate non-
97  See response to Request for Information of 23 November 2018, paragraph 3.
98  See response to Request for Information of 23 November 2018, paragraph 2.
99  See response to Request for Information of 23 November 2018, paragraph 5.
100 See response to Request for Information of 23 November 2018, paragraph 3(b).
101 See response to Request for Information of 27 November 2018.
102 Form CO, paragraph 120.
103 See replies to Q28-Q30 of the Questionnaire to customers.
                                                      20
 ---pagebreak---       coordinated effects deriving from the leveraging of TCCC’s position in cold
      drinks vending services/Coca-Cola in the same countries.
6.    CONCLUSION
(116) For the above reasons, the European 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
                                                   Member of the Commission
                                             21