Foreign Agricultural Service GAIN Report Global Agriculture Information Network

Voluntary Report - public distribution Date: 8/5/1998 GAIN Report #AU8035 Market Promotion/ Competition Austrian Chain Purchased by German Concern 1998

Prepared by: Keith Schneller U.S. Embassy Drafted by: Walter Krucsay

Report Highlights: Recently, the German concern “Rewe” purchased the Austrian supermarket chain “Julius Meinl” which covers 7.5% of the Austrian food market. If the deal is approved by the cartel agency, Rewe which already owns the supermarket chain “Billa”, will increase its market share to 37%. The transaction is strongly opposed by the Economic Minister and the trade union as they fear a possible misuse of concentrated market power.Summary: Recently, the German concern “Rewe” purchased the Austrian supermarket chain “Julius Meinl” which covers 7.5% of the Austrian food market. If the deal is approved by the cartel agency, Rewe which already owns the supermarket chain “Billa”, will increase its market share to 37%. The transaction is strongly opposed by the Economic Minister and the trade union as they fear a possible misuse of concentrated market power. Includes PSD changes: No Includes Trade Matrix: No Unscheduled Report [AU1], AU GAIN Report #8035 Page 1 of 2

After the purchase of Austria’s largest supermarket chain “Billa” in 1996, the German concern “Rewe” acquired recently the Austrian supermarket chain “Julius Meinl”. The purchase price has not been disclosed. The transaction includes 343 shops with a total sales area of 177,000 square meters and a central storage facility near Vienna. These shops have a labor force of around 5000 that achieved a turnover of AS 9.3 billion. If the deal is approved by the cartel agency, the Rewe concern will be by far the strongest retailer in Austria. With “Billa”, “Merkur”, and “Bipa” so far it has covered 29.5% of the market, followed by “Spar” with 27.9%. The acquirement of “Meinl” will increase Rewe’s market share in Austria to 37%.

Speculations, that the Meinl chain would be sold began two years ago, but were always denied by the Meinl family who founded the company 140 years ago. The recent sale is a consequence of the intensified competition after EU accession. Meinl, with many small shops was prepared for the new situation. In 1997, the retail chain had a deficit of AS 89 million

The firm name “Meinl” will not be maintained. During a transition period of one to two years, the shops will be renamed “Billa”, “Merkur”, and “Bipa”. According to Rewe, no shops will be closed at the beginning. However, it is expected that small or uneconomically operating shops will be shut down later. This should also entail a reduction of the labor force although Rewe promised to take over and keep all employees.

In the negotiations between Rewe and Meinl, Meinl products probably played a key role as Rewe agreed to sell Meinl and Meinl jam not only in its Austrian but also in its German chains. (Note: The Meinl concern owns, in addition to retail shops, banks, real estate, and food processing plants.)

The transaction which was retroactively enforced January 1, 1998, is strongly opposed by the trade union and particularly Economic Minister Johannes Farnleitner who fear the power of a company which controls more than one third of the entire retail market. Farnleitner stated he will try everything to avoid the deal. Although the EU cartel agency in Brussels is responsible for this case, he indicated he will ask Brussels to shift the matter back to Austria. In his opinion, Austria could be adversley affected by the deal and thus the approval decision should be made in Austria.

In reaction to Farnleitner’s announcement, Meinl threatened that he would have to lay off 2000 laborers if the deal will not be accepted. At the same time, Rewe threatened to refrain from purchasing Austrian food products and switch more to its own foods produced in Germany. However, both statements fueled Farnleitner’s and trade union’s aversion for the intended deal. They see in the strong concentration also the possibility for black mail.

Comment: Austrians are generally conservative and tradition conscious. Thus, the elimination of an acquainted name will be regarded by many people, particularly older people almost as a personal loss. Similar opinions were voiced by seniors associations.

The awareness of tradition awareness and the frequent belief that Austrian products are of superior quality would certainly have adverse effects if Rewe would execute its threat and turn away from Austrian products. In this case most Austrians would boycott the shops of the Billa group.

The acceleration of the concentration process on the retail sector after EU accession was expected. If the Meinl

UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #8035 Page 2 of 2 purchase by Rewe is approved, the two major retailers, the Billa group and Spar will have a market share of 65%. At present, seven supermarket chains cover 94% of Austria’s food market.

The continued concentration is viewed with great reservation by the Austrian food industry and agricultural interests. Due to the declining number of buyers, high price pressure on food producers can be exercised without necessarily forwarding the lower price to consumers. For instance the price of slaughter hogs declined 7% to AS 19.35 in the first quarter of 1998. However, at the same time, consumer prices for pork rose by 1.9% to AS 94.21. This example shows also the huge price margin of 386% between producer and retail prices which is related to little competition by the few buyers.

UNCLASSIFIED Foreign Agricultural Service/USDA