Coles Group Property Developments Ltd - s.87B undertaking

On 2 July 2015, the ACCC announced it had accepted an undertaking from Coles Group Property Developments Ltd and Coles Supermarkets Australia Pty Ltd (together, Coles) in relation to Coles’ proposed acquisition of a lease to operate a Coles supermarket at a site located in a proposed retail development at Lakelands, north of Mandurah, in Western Australia over part of Lot 9120, DP 400194, Volume 2828, Folio 750 (Lakelands Site), (Proposed Lease Acquisition).

Coles has given an undertaking to the ACCC to divest its freehold title in land identified as Lot 806 Mandurah Road, Karnup (Lot 1 on DP402366, Volume 2850, Folio 889) (Divestiture Site), approximately 2.7 kilometres north/west of the Lakelands Site.

The ACCC considered that a starting point for assessing the likely impact of the Proposed Lease Acquisition in particular geographic areas was to assess the level of competition provided by alternative full-line supermarkets within the immediate surrounds of the Lakelands Site, extending approximately 5km from the Lakelands site (the Local Retail Supermarket Market).

The ACCC was concerned that, in the absence of the undertaking, the Proposed Lease Acquisition may have the effect, or be likely to have the effect, of substantially lessening competition in the Local Retail Supermarket Market.

The ACCC was concerned that, in the absence of the undertaking, there would be no full-line supermarkets competing with Coles in the Local Retail Supermarket Market, and the Proposed Lease Acquisition would remove the opportunity for another full-line supermarket to enter the Local Retail Supermarket Market. As a result, there would likely be a reduction in the variety and quality of retail supermarket offerings provided to consumers in the Local Retail Supermarket Market and/or an increase in prices, compared to the offerings in the future without the Proposed Lease Acquisition.

The ACCC also considered that, absent the Undertaking, the threat of likely, timely and sufficient new entry in the Local Retail Supermarket Market by a rival full-line supermarket operator was unlikely to provide a strong competitive constraint on Coles.

The objective of the undertaking is to address the ACCC's competition concerns which would otherwise arise as a consequence of the Proposed Lease Acquisition. The undertaking aims to achieve this objective by:

1. placing an obligation on Coles to ensure that the Divestiture Site is sold to an ACCC-approved purchaser;
2. placing obligations on Coles to not develop the Divestiture Site before its divestment, and not acquire any freehold or leasehold interest in the Divestiture Site for 5 years after its divestment unless otherwise agreed by the ACCC;
3. creating an opportunity for a viable, effective, stand-alone, independent and long term competitor to enter the Local Retail Supermarket Market;
4. placing obligations on Coles to maintain the value and/or marketability of the Divestiture Site prior to divestiture; and
5. placing obligations on Coles to provide for the effective oversight of its compliance with this Undertaking.