Association of Competition Economics, Annual Conference, Milan 27 November 2015

DEMB/Mondelēz: JV in the coffee sector

Szabolcs LORINCZ Chief Economist Team DG Competition European Commission

Disclaimer: the views expressed are those of the author and cannot be regarded as stating an official position of the European Commission. Context • Multi-serve coffee • Roast and Ground (R&G) • Instant • Single-serve coffee systems • Pads Senseo (DEMB) • Multi-drink capsules Tassimo (MDZ), Dolce Gusto (N), Tchibo • Espresso capsules Nespresso (N), Illy • Trend towards premium: from multi-serve to single-serve • Higher quality • More variety • Higher price • Parties present across EEA national markets

2 M.7292 – DEMB/Mondelēz/Charger OpCo R&G and filter pad consumables

• R&G large market shares, substantial overlap (FR, DK, LV) • Parties own leading brands, "dominant position" • Filter pads: strong positions due to Senseo brand (FR, AT)

• Phase I remedies proposed • Brand divestments • R&G DK and LV: Merrild • R&G FR: L'Or and Grand Mère • Brand licencing and black-out option (3+2 years) • Senseo in AT • Unresolved: filter pads segment in France

3 M.7292 – DEMB/Mondelēz/Charger OpCo R&G and filter pad consumables

• R&G and filter pad: substitutes? • Switching from R&G to FP but not vice versa • Consistent with trend towards premium • Simulation models: non-trivial price increases • Econometric models: less strong substitution

• Phase II remedies proposed • Brand divestments • R&G DK and LV: Merrild • R&G and filter pad FR: Carte Noire • Brand licencing and black-out option (5+5 years) • Senseo and N-Capsules in AT

4 M.7292 – DEMB/Mondelēz/Charger OpCo Single-serve systems

• Primary market (machines) vs. aftermarket (consumables)

• Closeness of competition

Senseo – Tassimo – Dolce Gusto – Nespresso

• Ownership and openness of systems • Senseo Philips/DEMB open • Tassimo Bosch/Mondelēzclosed • Dolce Gusto Nestlé closed • Nespresso Nestlé open

5 M.7292 – DEMB/Mondelēz/Charger OpCo Single-serve systems

• Closeness of competition • Entry studies: interaction between all systems • Qualitative evidence • Î differentiated competition • Î Tassimo closer to Dolce Gusto than to Senseo

• Senseo filter coffee black coffee "entry level" • Tassimo espresso-like multi-beverage/milky "family" • Dolce Gusto espresso-based multi-beverage/milky "family" • Nespresso espresso black coffee "premium"

6 M.7292 – DEMB/Mondelēz/Charger OpCo Single-serve systems

• Ability to influence/raise machine prices • Senseo and Tassimo machines produced by independent manufacturers • Parties can promote machine sales (coupons, cash-backs) • Limited ability to increase Senseo machine prices • Limited incentive to raise machine/system prices • Senseo is open system (competing consumables) • Tassimo: machine penetration is key • Î Strong incentive to aggressively promote machines • No SIEC on single-serve machine markets

7 M.7292 – DEMB/Mondelēz/Charger OpCo Some conclusions

• Challenging case due to size and complexity

• Important economic submissions from Parties, Competitors

• Assessment of economic evidence must go hand- in-hand with assessment of qualitative evidence

8 M.7292 – DEMB/Mondelēz/Charger OpCo