Bundeskartellamt clears proposed merger between EDEKA and Tengelmann subject to suspensive conditions

On 30 June 2008 the Bundeskartellamt cleared a joint venture mutually controlled by EDEKA and Tengelmann subject to suspensive conditions. The undertakings intend to merge the two discount chains ‘Netto Marken-Discount’ and ‘Plus’ and to operate the joint venture under the name ‘Netto Marken-Discount’. According to the relevant legal provisions, the merger of the two undertakings also includes a merging of their supermarket businesses, i.e. EDEKA and Kaiser’s Tengelmann.

The commitment solution stipulates that those outlets that are problematic under competition law must be sold. In addition, the planned purchasing cooperation was denied. The President of the Bundeskartellamt, Dr Heitzer, stated: “With its decision the Bundeskartellamt is taking a clear stand against the growing concentration in the food retail sector. At the same time EDEKA will only be able to expand its purchasing power vis-à-vis its suppliers to a very small extent.”

The concentration affects the German food retail market. In recent years this market has undergone a radical consolidation process. Today about 90% of the domestic market volume is accounted for by the five major trading companies. EDEKA is the market leader with a market share of 25 per cent.

The Bundeskartellamt divides the food retail sector in Germany into 345 regional sales markets. Approximately 100 of these markets were examined. The Bundeskartellamt included all trading companies with considerable market significance in its investigation. These are, amongst others: EDEKA, REWE and Tengelmann as well as ALDI, Lidl, Metro or tegut. The market shares of EDEKA substantially exceed those of its next largest competitors. The highly concentrated markets fall almost exclusively into so-called “clusters” of neighbouring markets where EDEKA also holds high market shares. Also in a regional market assessment EDEKA’s market leadership therefore poses a more than regional problem even today.

This market leadership would have been further intensified by the merger.

The planned concentration entails the merge of the number 1 and 5 in the German food retail trade. EDEKA not only takes over a close competitor (in terms of sales concept), but is also in a position to considerably expand its coverage of regional and nationwide markets. In many of the regional markets the merger would lead to market share additions.

Beside the market share additions, EDEKA would be able to expand its substantial competitive potential further. With the Netto Marken-Discount stores and EDEKA supermarkets, EDEKA has positioned itself both in the full-line retail sector and the so-called “soft discount” sector which is also brand-oriented. Like hardly any other trading company, EDEKA is already in a position to target different groups of customers through its sales concept. The company’s strength lies in particular in the area of brand products.

Without Tengelmann the only major suppliers remaining in the soft discount and full-line sectors would be REWE and, with some restrictions, the Schwarz group. The price competition which can be observed in the market would not be sufficient to effectively restrict EDEKA’s competitive scope of action.

Finally, the notified concentration would intensify the already high level of market concentration in the procurement of goods, leading to an even greater dependence of the suppliers. An expansion of EDEKA’s position in the procurement markets would also further strengthen its market position in the sales markets, especially since EDEKA intends to largely adapt the newly acquired supermarkets to Netto’s brand discount concept which has been more economically successful.

To avoid a prohibition EDEKA and Tengelmann approached the Bundeskartellamt with an offer to undertake certain commitments. The case could be closed after intensive negotiations had resulted in a commitment solution.

Before the concentration can be put into effect, Tengelmann will sell all those outlets which are located in markets, which the Bundeskartellamt considers to be problematic, to one or several (a maximum of three) purchasers. These will number almost 400 sites. This will prevent the market share growth in the regional markets otherwise caused by the concentration.

A site can only be closed if it is proven that no purchaser can be found. Under the condition set by the Bundeskartellamt this regulation is limited to a few individual cases.

The planned purchasing cooperation between EDEKA and Kaiser’s Tengelmann was not admissible. As already announced, Tengelmann is to look for another partner for a purchasing cooperation.

Due to the restructuring of the transaction, Kaiser’s business will also be kept separate from EDEKA’s business.

The combination of “site divestment” and “separate purchasing arrangement for Kaiser’s supermarkets” will make any increase in EDEKA’s goods purchasing power resulting from the merger insignificant.