Safeway bidders still in the game
Consolidation would lead to tighter regulations
June 24 2003
The Competition Commission has not yet ruled out any of the potential bidders for UK supermarket operator Safeway, and has asked for further comment on possible remedies.
The Commission has also indicated that any consolidation in the supermarket sector would have to be accompanied by a tightening of the Code of Practice designed to protect suppliers.
Potential bids by Tesco, Asda, Sainsibury’s, as well as a tabled bid by Morrisons, are all under investigation. A fifth potential bidder, Arcadia and Bhs owner Philip Green, is currently clear to table a bid but is thought to have been waiting for an indication of the likely competition.
The remedies letter sent to the companies under investigation indicates that none has so far been finally ruled out. However the the likelihood that considerable numbers of store sell-offs would be ordered remains high.
Perhaps predictably, the letter offers most hope to Morrisons, with the Commission expressing the view that a Morrison takeover of Safeway would be ensure that four strong players remained in the market.
There was surprise in some quarters when Morrisons bid was referred along with the bigger players. As the number five operator, Morrisons has the least geographical overlap with Safeway, However, some disposals would be necessary to address local competition concerns.
Along with store disposals, the letter suggests that a buyer might also ordered to sell assets such as distribution centres or land.
The Commission also indicated that it had listened to concerns raised by suppliers about increased concentration of buying power. The letter said: “Approval of any bid for Safeway should be conditional upon a strengthening of the OFT’s Code of Practice governing relations between the successful bidder and its suppliers.”
It also indicated that pricing could be regulated. “There should be a requirement for a ‘level playing field’ regarding suppliers’ terms. Several variations on this theme have been proposed, but the essential point is that price differences between the supermarkets should reflect cost differences.”
Both Tesco and Asda will be heartened by an indication that the grocery market will be the biggest factor in the final decision. The Commission had earlier suggested that non-food market share might also be important. Tesco and Asda have both been growing these areas of their business, with Sainsbury’s looking to follow.
There is also an indication that online grocery sales, where Tesco is far and away the biggest play will not be given too much weight. The Commission suggested that access to online grocery shopping is not a big enough factor in consumer choice to play a big part in the final decision.
Tesco chief executive Sir Terry Leahy said: “We welcome the opportunity to comment on the issues and possible remedies before the Commission reaches its conclusions about the proposed bids.
“As we have previously stated, and as the Commission notes, the current proposals affecting the future of Safeway raise serious issues as to whether a structural change, which could see the four major retailers become three, should be permitted.
“Although the hurdle for consolidation for any of the national players seems to be high, if such a restructuring were to be permitted, we have always said that Tesco would be best placed to lead this change.”
Sainsbury’s chief executive Sir Peter Davis said: “This is half time in the process; fact gathering is ongoing and the issues are still being debated.”
He added: “The issues are broadly the same as those cited in
the Issues Statement on May 8 and the remedies, which are entirely hypothetical, contain no surprises. We are looking forward to further discussions at our planned meeting next week and to working with the Commission
to the end of the process.”
The commission is due to report its findings to the DTI on August 12.
