Proposed acquisition by Tesco plc of Safeway plc

No. ME/1041/03

A report under section 125(4) of the Fair Trading Act 1973 on the advice of the Deputy Director General of Fair Trading, given on 13 March 2003, to the Secretary of State for Trade and Industry under section 76 of the Act

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts from the advice regarding the jurisdiction, parties and the conclusion.

JURISDICTION

The merger satisfies the assets test of the Act as the gross assets to be acquired were valued at £4.9bn in Safeway's last annual accounts. The European Community Merger Regulation does not apply as both Tesco and Safeway achieved more than two-thirds of their aggregate 2002 Community turnover in one and the same Member State, ie, the United Kingdom.

THE PARTIES

Tesco plc (Tesco) is part of Tesco Group. Tesco Group operates grocery stores in Europe, Asia and the UK, which also sell some non-grocery items, including petrol, tobacco and newspapers. Tesco Group's turnover in the year ended 23 February 2002 was £25.654bn and its profit before tax was £1.201bn. Tesco is the largest grocery retailer in the UK, having overtaken Sainsbury in the 1990s. Its 776 stores are located mainly in the South West, the South East, London and the East, although it has also a presence in Northern Ireland, Scotland and the North East. Tesco stores have a variety of formats, varying in size from an average of around 2000 square feet of net sales area for Tesco Express stores to 80,000 square feet for Tesco Extra stores.

Safeway plc (Safeway) is the UK's fourth largest supermarket chain with 479 stores (with an average store size of 21,000 square feet). Around 20 per cent of its stores are located in Scotland. Some 121 stores have net sales areas less than 15,000 square feet and 184 stores have petrol stations on site. In addition, it has a 50 per cent stake in a joint venture with BP operating 55 food stores on BP's petrol station forecourts. Safeway supplies its stores from 20 regional distribution centres and operates six of these itself. In the year ended 30 March 2002, it reported pre-tax profit of £355m, on a turnover of £8.72bn and gross assets at that date of £3.9bn.

CONCLUSION

The proposed acquisition by Tesco of Safeway qualifies for investigation on the assets test of the Act. As mentioned above, the interaction of local and national competition issues in one-stop grocery retailing is complex. At the local level, the loss of competition between Tesco and Safeway in certain areas appears to be substantial. Moreover, at a national level the merger raises additional competition concerns. In particular, it would lead to a significant increase in concentration. We believe that there is a significant prospect that this merger may be expected to result in a substantial lessening of competition. The potential adverse effects we have identified do not appear to be outweighed by potential consumer benefits. Nor do we believe that undertakings in lieu of reference would be appropriate in this case because of the difficulties in identifying and addressing the local areas of concern and the inability of such divestments to address the concerns at national level. 

I therefore conclude and recommend that you should refer this merger to the Competition Commission.

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