Retailers market buying power is a concern for food processors, many of which are facing margin squeezes due to higher energy and commodity costs. Food retailers have continued consolidating in theUK, leading a trend throughout Europe, giving them broader distribution and more power to demand lower prices from their suppliers.
In a provisional conclusion issued yesterday, the Competition Commission concluded that the acquisition of the 115 stores "may be expected to result in a substantial lessening ofcompetition" in 14 grocery retail markets in the UK.
"We identified stores in 14 areas where we have provisionally found that the acquisition is expected significantly to reduce competition resulting in higher prices, or reductions inquality, range or service," the Commission stated. "We believe the only effective means of restoring competition in these areas is for the identified stores to be sold to a suitablegrocery retailer who will offer choice and actively compete in the relevant local markets."
Most of the stores acquired by Somerfield are defined as 'mid-range' stores. All had been acquired by Morrisons as part of the acquisition of Safeway in 2003. Two of the 115 stores were amongthe 52 stores the Commission forced Morrisons to sell as a condition of approving the company's purchase of Safeway.
Neither of the two stores is among the 14 which now cause the Commission to be concerned. Somerfield and other interested parties have until 16 August to respond to the Commission's findings beforeit issues a final decision.
Somerfield itself is currently up for sale. In April Somerfield announced that a consortium made up of investment firms had made a bid for the company, valuing the group at about £1.1bn. Thecompany had previously rejected a £1.04bn offer from the Baugur Group, a retailer in Iceland, which has dropped out of the bidding war. London & Regional, a property group, has reportedly made asimilar offer.
The bidding war is part of the further consolidation in the UK's supermarket sector, in which smaller players have been dominated by Tesco, Asda, Sainsbury's and the Safeway/Morrison groups. Thefour chains hold an 80 per cent share of the UK market. Somerfield is the UK's fifth-largest supermarket chain.
The Somerfield group includes 664 Somerfield stores and 560 Kwik Save outlets. The group has annual sales of about £5bn.