OFFICE OF FAIR
TRADING News Release (116/08) issued by COI News Distribution
Service. 8 October 2008
The OFT has
referred the completed acquisition of the Millway business of
Dairy Crest Group (Millway) by Long Clawson Dairy (Long Clawson)
to the Competition Commission, because of competition concerns in
relation to the supply of blue Stilton cheese (Stilton).
UK consumers spend around £65 million per year on Stilton, which
is a protected name under EC regulations, and can only be
produced, with a proper licence, in three East Midland counties.
The six largest supermarket chains in the UK together sell around
90 per cent of Stilton in the UK. These retailers have always
awarded their mainstream contracts for standard and mature Stilton
to just three large-scale producers - the two merging parties and
Tuxford and Tebbutt. As such, the merger gives Long Clawson over
50 per cent of total UK sales of Stilton post-merger.
The OFT considered the argument that, given the purchasing power
of the big supermarkets, even with this significant degree of
supplier concentration, consumers may not ultimately be harmed by
this merger.
However, based on the evidence available, the OFT has doubts that
the bargaining power of the supermarkets would prevent a rise in
wholesale and retail prices in this instance for the following reasons:
* Competition for the big supermarket's regular contracts
for standard and mature Stilton is unlikely to be affected by most
other licensed Stilton dairies. Most of these are very small or
niche businesses and while one is much larger, it is unlikely to
change its premium business model and expand into a mass producer,
even with encouragement from the supermarkets.
* Evidence on price movements shows that competition from French
or Italian blue cheeses is generally weak, and would not prevent
Stilton prices going up. While supermarkets could stock more
Danish Blue if Stilton became more expensive, they could not drop
their Stilton supplier entirely, and their bargaining position is
weaker than when they could choose between three big Stilton suppliers.
Ultimately, the OFT concluded that despite the buyer power of
supermarkets, the reduction from three to two major Stilton
suppliers could result in a price increase to retailers and be
passed through to consumers. A full Competition Commission inquiry
is justified to test whether this is, in fact, a likely effect of
this merger.
Simon Pritchard, OFT Senior Director of Mergers, said:
'This deal presents a risk of higher Stilton prices for
shoppers at the UK's biggest supermarkets. Given the amount
that UK shoppers spend annually on Stilton, even a small retail
price increase would translate into a multi-million pound effect
over several years. The Competition Commission will now
investigate further and see whether our initial concerns can be resolved.'
NOTES
1. The three counties in which Stilton can be produced are
Derbyshire, Leicestershire and Nottinghamshire. The six largest UK
grocery retailers are Tesco, Sainsbury's, Asda,
Morrison's, the Co-operative Group, and Somerfield. Tuxford
and Tebbutt is part of The Cheese Company.
2. The OFT has a duty to make a reference to the CC if the OFT
believes that it is or may be the case that a relevant merger
situation has been created; and the creation of that situation has
resulted, or may be expected to result, in a substantial lessening
of competition within any market or markets in the United Kingdom
for goods or services.
3. Under the Enterprise Act 2002 a relevant merger situation is
created if two or more enterprises have ceased to be distinct
enterprises; and the value of the turnover in the United Kingdom
of the enterprise being taken over exceeds £70 million; or as a
result of the transaction, in relation to the supply of goods or
services of any description, a 25 per cent share of supply in the
UK (or a substantial part thereof) is created or enhanced.
4. The text of these decisions will be placed on the Office of
Fair Trading's web site at http://www.oft.gov.uk shortly.
http://www.oft.gov.uk
PUBLIC enquiries: 0845 7224499 enquiries@oft.gov.uk
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