The Finnish Competition and Consumer Authority (FCCA) has approved Kesko Food Ltd’s acquisition of Suomen Lähikauppa Oy, subject to certain conditions. The conditions imposed by the FCCA are an obligation to sell 60 stores of Suomen Lähikauppa to competitors and to continue purchases from Suomen Lähikauppa’s current wholesaler for a certain period of time.
Both Kesko Food and Suomen Lähikauppa operate in the food retail industry. The K-Group’s retail network consists of approximately 900 food stores in Finland, and its share of the food retail market stands at 32.7% according to industry statistics. Suomen Lähikauppa’s retail network currently consists of more than 600 Siwa and Valintatalo stores as well as one Euromarket. The company’s market share stands at 6.4%.
The merger will make Finland’s food retail industry even more concentrated, as one nationwide chain will disappear from the market. Suomen Lähikauppa’s competitiveness and financial situation have, however, been extremely poor for a long time. According to information provided to the FCCA concerning Suomen Lähikauppa’s financial situation, the company would have exited the market in the near future regardless. The FCCA’s investigation also revealed that there were no Finnish or foreign companies that were interested in purchasing Suomen Lähikauppa other than Kesko Food. The food retail industry would have therefore become more concentrated even without the merger.
Extensive econometric investigation into the effects on competition
The FCCA used a variety of econometric methods to evaluate the effects that stores opened and closed between 2006 and 2014 had had on the turnovers of Kesko Food’s and Suomen Lähikauppa’s stores and how different kinds of stores had impacted on competition faced by the K-Group’s stores. Based on an analysis of the results, the FCCA excluded from the scope of its examination 467 local markets in which the merger would not significantly reduce the level of competition faced by Kesko Food. For the 200 markets still included in the examination, the FCCA performed a detailed market analysis, in which particular attention was given to the locations of stores relative to each other and to transport routes, the relative sizes of stores, and plans of retail chains to improve their store networks in the future.
The FCCA also examined the effects of the concentration of the market on Kesko Food’s prices. A high level of concentration typically results in higher prices. In this case, however, the FCCA found that the merger would not have a significant impact on prices on average, although in some local markets, prices could increase considerably. The FCCA identified 60 local markets in which the merger would probably have a negative impact on competition (see annex).
Structural and operational conditions
The FCCA obligated Kesko Food to sell a Suomen Lähikauppa store in each of these 60 areas to existing or potential competing food retailers. It is likely to be difficult to find suitable or interested buyers for some of the stores. The FCCA did not make the potential failure of the sale of some of these stores an obstacle to completing the merger, as the FCCA’s investigators concluded that the exit of Suomen Lähikauppa from the market was in any case inevitable due to its financial difficulties. Kesko Food will initially try to find buyers for the stores itself, but an impartial agent will take over the process after a certain period of time. No minimum sale price has been set for the stores.
Suomen Lähikauppa’s primary supplier and logistics partner has been Tuko Logistics Cooperative. The transfer of Suomen Lähikauppa’s purchases from Tuko to Kesko Food’s suppliers and logistics system may damage Tuko’s competitiveness, and the merger can therefore also have an impact on competition in the wholesale sector. To alleviate this problem, the FCCA obligated Kesko Food to continue purchases from Tuko for a fixed period of time and to transfer its purchases from Tuko gradually. Suomen Lähikauppa would have been extremely likely to go out of business in the near future without the merger, at which time Suomen Lähikauppa’s purchases from Tuko would have ceased suddenly. The conditions imposed by the FCCA on Kesko Food enable Tuko to adjust its business in a controlled manner.
The decision issued by the FCCA contains numerous trade secrets of the parties. The decision cannot be published until the confidential information has been removed, which will take approximately two weeks.
Juhani Jokinen, Director General, tel. +358 29 505 3389
Maarit Taurula, Head of Research, tel. +358 29 505 3381
Hanna Kaiponen, Senior Research Officer, tel. +358 29 505 3620
Further information about the econometric analysis:
Olli Kauppi, Senior Research Officer, tel. +358 29 505 3394
Emmi Martikainen, Senior Research Officer, tel. +358 29 505 3321