Poundland/99P That Day
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Poundland and 99p A report on the anticipated acquisition by Poundland Group plc of 99p Stores Limited 18 September 2015 © Crown copyright 2015 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Website: www.gov.uk/cma Members of the Competition and Markets Authority who conducted this inquiry Philip Marsden (Chair of the Group) Katherine Holmes John Krumins Tim Tutton Chief Executive of the Competition and Markets Authority Alex Chisholm The Competition and Markets Authority has excluded from this published version of the report information which the inquiry group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. 1 Contents Page Summary .................................................................................................................... 4 Findings ...................................................................................................................... 8 1. The reference ....................................................................................................... 8 2. The companies and the industry in which they operate ........................................ 8 Poundland ............................................................................................................. 8 99p ...................................................................................................................... 10 Overview of the offerings of the Parties .............................................................. 12 The value retail sector ......................................................................................... 14 Other retailers and their ‘value’ propositions ....................................................... 17 3. The merger and relevant merger situation .......................................................... 18 The Transaction .................................................................................................. 18 Rationale for the merger ..................................................................................... 19 Jurisdiction .......................................................................................................... 20 Enterprises ceasing to be distinct .................................................................. 20 Turnover test ................................................................................................. 20 Conclusion on jurisdiction .............................................................................. 21 4. Market definition.................................................................................................. 21 Product market.................................................................................................... 22 The CMA econometric analysis ..................................................................... 23 The CMA survey ............................................................................................ 24 The CMA range review .................................................................................. 27 Conclusions on product market definition ...................................................... 28 Geographic market ............................................................................................. 29 Conclusions on geographic market definition ................................................ 32 5. Counterfactual..................................................................................................... 32 The financial and operational performance of 99p .............................................. 33 Our assessment of the counterfactual ................................................................ 36 Scenario 1: continuation of the pre-merger situation ..................................... 36 Scenario 2: sale of 99p to an alternative purchaser ....................................... 39 Scenario 3: failure of 99p ............................................................................... 40 Conclusions on the counterfactual ...................................................................... 40 6. Assessment of the competitive effects of the merger.......................................... 42 Introduction ......................................................................................................... 42 Customer behaviour ............................................................................................ 42 Introduction .................................................................................................... 42 Trends ........................................................................................................... 43 Reasons given by customers for visiting SPP retailers .................................. 44 Destination shopping ..................................................................................... 46 Demographic characteristics of customers, basket size, shopping frequency46 Conclusions on customer behaviour .............................................................. 48 The nature of pre-merger competition ................................................................. 48 How the Parties set their offering ................................................................... 49 Competitor monitoring and benchmarking ..................................................... 51 Qualitative evidence on competitive interactions ........................................... 54 Assessment of evidence on the closeness of competition between the Parties and other retailers......................................................................................... 57 Conclusions on the nature of pre-merger competition ........................................ 60 Effects of the merger ........................................................................................... 61 2 Introduction .................................................................................................... 61 Theory of harm 1: loss of a current competitor at the local level ................... 64 Theory of harm 2: loss of a current competitor at the national level .............. 71 7. Conclusion .......................................................................................................... 78 Appendices A: Terms of reference and conduct of the inquiry B: 99p financial information C: Counterfactual D: Customer survey E: Econometric analysis F: Incentive to vary local parameters of competition Glossary 3 Summary 1. On 17 April 2015, the Competition and Markets Authority (CMA), in exercise of its duty under section 33(1) of the Enterprise Act 2002 (the Act), referred the anticipated acquisition by Poundland Group plc (Poundland) of 99p Stores Limited (99p) for further investigation and report by a group of CMA panel Members (Inquiry Group). The investigation was suspended for a period of three weeks at the request of Poundland and resumed on 8 May 2015. Throughout this report, we refer to Poundland and 99p collectively as the Parties. 2. Poundland is a retailer that sells grocery products, health and beauty products and general merchandise, almost all at a single price point (SPP) of £1. It has 547 stores in the UK, most of which are located on high streets and in shopping centres. Poundland was listed on the London Stock Exchange in 2014. In the year to 29 March 2015 its revenues were £1.1 billion, with pre-tax profits of £36.2 million. 3. 99p operates 216 stores under the ‘99p store’ brand, which sell similar products, primarily at an SPP of 99 pence. The majority of its stores are located in the south of England. 99p also operates 34 stores with different ranges and pricing models under the ‘Family Bargains’ and ‘99p Plus’ brands. 99p is a private limited company. In the year to 1 February 2015, its revenues were £[] million []. 4. The value retail sector, of which SPP retail is a part, has experienced significant growth over the past decade, from £2.1 billion in estimated net sales in 2005 to £6 billion in estimated net sales in 2015. It is expected to continue to grow, as many value retailers have significant expansion plans. This sector includes the following categories, among others: (a) SPP retailers, including Poundland, 99p and Poundworld Retail Limited (Poundworld), all of which operate across a large number of geographic areas (the large SPP retailers) and numerous small SPP retailers. (b) Limited assortment discounters (LADs), including ALDI Stores Limited (Aldi), Lidl UK GmbH (Lidl) and Iceland Foods Limited (Iceland), which sell primarily own-branded grocery products. (c) Value general merchandise retailers (VGM retailers), including B&M European Retail Value S.A (B&M), Home Bargains operated by TJ Morris Limited (TJ Morris), Poundstretcher Limited (Poundstretcher) and Wilkinson Hardware Stores Limited (Wilko) as well as Poundworld’s Bargain Buys and 99p’s Family Bargains branded stores. 4 5. In recent years, the Big Four supermarkets (Asda Stores Limited