The Australian Competition and Consumer Commission will oppose the proposed acquisition of Berri Limited by Coca-Cola Amatil Limited, ACCC Chairman, Mr Graeme Samuel, said today.
"The ACCC considered that CCA could exert its market power to link sales of the Berri fruit juice products to its dominant Coca-Cola soft drink product. As retailers would also have commercial incentives to bundle Berri's fruit juice products with CCA's leading portfolio of beverages themselves, the ACCC's investigation strongly suggests that the likely effect of the Berri acquisition would be reduced consumer choice and, ultimately, higher prices for consumers".
Berri is Australia's largest fruit juice manufacturer and accounts for close to half of total national sales of fruit juice and fruit drink. Berri's leading fruit juice brands include Berri, Daily Juice Company, Australian Fresh, Just Juice and Prima. Berri also produces a range of packaged water, sparkling mineral water, flavoured milk, cordial and water ice products.
CCA is Australia's largest non-alcoholic beverage manufacturer with a leading portfolio of carbonated soft drink, packaged water and sports drink products. It is also active in cordial, energy drinks and iced tea. CCA's fruit juice and drink brands include Fruitopia, Growers Choice and Fruit Box. It does not presently produce or supply fresh fruit juices. It sales account for approximately one per cent of total national fruit juice sales.
In July, the ACCC began extensive investigation of the proposed acquisition. It consulted with market participants including competing manufacturers, retailers, industry associations and other interested parties. The investigation tested if the proposed acquisition could breach section 50 of the Trade Practices Act 1974.
"The ACCC identified the relevant markets as the separate national markets for the production and wholesale supply of carbonated soft drink; and the production and wholesale supply of chilled and ambient fruit juice and fruit drink. At the wholesale level, these products form part of a range of beverages that retailers must carry to meet customers' demands. On this basis, the ACCC considered soft drink, fruit juice and other beverages to be complementary rather than substitutable".
The ACCC's investigation showed that CCA already possessed market power in the soft drink market through the dominant brand loyalty associated with its Coca-Cola product, Coca-Cola's status as a "must stock" product, and CCA's unrivalled distribution network of in-store refrigeration units in the non-grocery trade channels, including petrol and convenience stores, milk bars, vending machines, and on-premise distribution such as restaurants, cafes, pubs, sporting arenas and cinemas. The non-grocery trade channels are important to beverage manufacturers given the higher margins and profits obtained.
The ACCC found that significant competitive harm would be likely to result from CCA obtaining market leadership in fruit juice.
"There was a high level of concern expressed by competitors to the merger parties", Mr Samuel said. "Market inquiries strongly suggested that CCA could sell Berri's fruit juice products in the non-grocery trade channels to the exclusion of rivals".
The ACCC considered CCA would be able to leverage its market power in soft drink to link sales of the Berri fruit juice products to its Coca-Cola product through a number of means. This included implicit or explicit: bundling or tying the Berri fruit juice products; threats of refusal to supply the Coca-Cola product; exclusive arrangements with retailers; the ability of the merged firm to structure various discounts, loyalty rebates and promotions; and conditions on the use by retailers of CCA supplied refrigeration equipment.
"Based on information before it, and taking into account the commercial incentives for the merged firm, the ACCC considered that there was a sufficient likelihood that leveraging of CCA's market power would occur.
"Moreover, the ACCC believes that, as a result of the proposed acquisition, retailers would themselves have commercial incentives to bundle Berri's fruit juice products with CCA's existing beverage portfolio", Mr Samuel said.
"Based on the ACCC's inquiries, the likely outcome of combining market leadership across these complementary products would be that a substantial proportion of the non-grocery trade channels would be foreclosed to competing fruit juice manufacturers. Further, the loss of the higher margins and profits that are derived in these channels, in addition to loss of economies of scale and scope, would significantly raise rivals’ costs and detrimentally affect their ability to compete with the merged firm in the grocery channel", Mr Samuel said.
Further, given the leading portfolio of brands that CCA would possess, it is unlikely that customers of the merged firm would have any significant ability to by-pass it.
"After the proposed acquisition, costs to alternative fruit juice suppliers would rise and it is likely that some would leave the market. Such an environment would result in reduced consumer choice and, ultimately, in higher prices.
"The ACCC therefore concluded that the proposed acquisition would substantially lessen competition in the market for the manufacture and wholesale supply of chilled and ambient fruit juice and fruit drink in Australia", Mr Samuel said.
The ACCC's competition concerns were put to CCA in early October. The ACCC subsequently considered further submissions from CCA and closely examined undertakings proposed by CCA.
"The ACCC's detailed consideration indicates that the behavioural remedies proposed by CCA, which in general terms attempted to address the issue of potential bundling and tying, could not fully address the long term competition harm arising from the proposed acquisition. The ACCC also formed the view that behavioural undertakings generally would be insufficient to alleviate the ACCC's competition concerns", Mr Samuel said.
"The ACCC noted that where merger parties propose undertakings that involve a real risk of uncertainty and ineffectiveness, and therefore the risk of competitive detriment to market structures and ultimately harm to consumers, consumers should not be the parties to bear the costs of that risk".
Reasons for this decision will be posted on the ACCC website shortly.