OFT sets out Safeway judgements
Morrisons referred on local competition grounds
March 28 2003
The UK office of Fair Trading has confimed that it questioned the conventional ‘drive-time’ measure when deciding to refer Morrisons potential bid for rival Safeway to the Competition Commission.
The OFT has published its detailed reasons for referring the potential bids by Tesco, Sainsbury’s and Asda, as well as Morrisons, for a full investigation. It has also set out the judgments that allowed Bhs and Arcadia owner Philip Green to avoid a referral of his potential bid.
In the case of Morrisons, which had argued there was little overlap between its 119 supermarkets, mainly based in the north of England, and the 479-strong Safeway estate, the OFT said that their was a case to be answered that a meger would reduce local competition.
Looking at the the one-stop, main shop market rather than any other factors such as convenience and top-up shopping, the OFT said that its investigation showed that Morrisons “does have regard to Safeway’s competitive postion in setting its own local strategies.”
The OFT also said that the road speeds used by Morrisons in assessing which stores might compete “were generally slower than those used by the other bidders.” In its report on competition in the supermarket sector published in 2001, the Competition Commission assessed local competion by using a 10 minute drive time measure in urban areas and 15 minutes in rutral areas.
The OFT said that Morrisons assumptions about road speeds in its submsiion were not necessarily wrong, but if the drive time measure is increased by five minutes to take lower drive speeds into account, it creates “a very large number of overlaps” between the Safeway and Morrisons estates.
At a national level, the OFT believes the merger of Morrison and Safeway “seems unlikely to raise additional competition concerns over and above the effects at local level.”
The judgement was more straightforward with the other three supermarket operators, with the OFT concluding that there were both local and national competition issues which needed investigating.
On the proposed bid by Philip Green’s investment vehicle Trackdean, the OFT said there is virtually no overlap in the sale of clothing or clothing accessories, and a very small overlap between Safeway and Bhs in home products.
The OFT said that Safeway would remain a competitor within the supermarket sector, and that “Trackdean believes that Safeway is underperforming and that it will be able to improve Safeway’s competitive offering.” Trackdean has given assurances that it would continue to operate Safeway as a grocery business.
