FCCA approves the acquisition between SOK and Stockmann Delicatessen subject to conditions

Today, the Finnish Competition and Consumer Authority (FCCA) approved the acquisition of Stockmann Group’s Delicatessen business by Suomen Osuuskauppojen Keskuskunta, SOK (The Central Finnish Cooperative Society), HOK-Elanto Liiketoiminta Oy, Pirkanmaan Osuuskauppa, Turun osuuskauppa and Meira Nova Oy subject to certain conditions. As condition for the approval of the acquisition FCCA required that Stockmann Delicatessen (Stockmannin Herkku) continue to make its purchases from Tuko until 31 December 2018.

The parties to the acquisition are active on both the retail and purchasing markets of the grocery sector. SOK, or the Central Finnish Cooperative Society, is part of S Group. HOK-Elanto, Pirkanmaan Osuuskauppa and Turun Osuuskauppa are regional cooperatives engaged in the grocery business within the Prisma and S-market chains. In addition, HOK-Elanto sells groceries through the Alepa chain and the Turun Osuuskauppa and Pirkanmaan Osuuskauppa cooperatives do so via the Sale chain. S-Herkkukeittiö is a new subsidiary wholly owned by SOK. Stockmann Delicatessen business sells groceries in six department stores in Finland.

As a result of the acquisition, the Finnish grocery market consolidates even further. The S Group’s market share will strengthen particularly in the centre of Helsinki, Tapiola and Tampere, exceeding the limit of 40 per cent in every other market area except Turku. Furthermore, there have been no new operators entering the grocery market in recent years, and it is unlikely that any will appear within the next few years either. The primary reasons limiting the entry of new operators into the sector are the long distances deriving from Finland’s geographical conditions and the sparse population. In addition, the Land Use and Building Act provisions on zoning set limitations on the sector by regulating the location of grocery stores and the space available for them.

However, based on the FCCA’s investigations, the acquisition will not significantly impede effective competition on the retail market of the grocery sector. Based on the agency’s economic analysis, the acquisition will not lead to price increases or lower the quality, assortment or service in Stockmann Delicatessen or the S Group stores in its vicinity. The analysis takes account of such factors as the impact of the acquisition on the level of concentration on the local market, proximity of competition between the parties, the profitability of the stores owned by the parties, and the efficiency benefits to be obtained from the acquisition.

The resulting savings in the purchase and logistics costs of Stockmann Delicatessen stores in particular will reduce the adverse competition effects of the acquisition. The effects are further reduced by the fact that, according to an extensive survey conducted by FCCA, the role of S Group as competitor to Stockmann has never been as strong as its market share might indicate. In addition, the competitive pressure caused by Stockmann Delicatessen on S Group has been negligible.

Other investigations performed by the agency also support the view of the effects on competition being minor. Based on the information published by S Group and the internal material submitted to the agency by the group, it intends to improve the competitiveness of Stockmann Delicatessens by lowering the prices, while maintaining the high quality of the stores. Furthermore, price increases in the S Group stores operating in the vicinity of Stockmann Delicatessens are unlikely due to the price control practised by S Group nationally and at the level of local cooperatives.

Commitment guarantees competition on the purchase market

Products sold at Stockmann Delicatessen stores are purchased through Tuko Logistics Osuuskunta. In practice, Tuko is the only alternative and independent wholesaler within the purchasing market of the grocery sector offering an alternative to SOK and Kesko Food that has been capable of offering a grocery selection at a national level. As a result of the business acquisition, the purchasing market of the grocery sector consolidates even further, while strengthening the positions of the market leader SOK on the purchasing market of groceries.

According to FCCA’s estimate, the removal of Stockmann Delicatessen’s purchase volume from Tuko will lead to the weakening of Tuko’s purchase terms and economies of scale, and because of the acquisition Tuko will face difficulties in adapting to the situation. This would also have an impact on the competitive position of the owners of Tuko, Wihuri and Heinon Tukku. The weakening of small competitors would contribute to further strengthening of the S Group in particular and partly the K Group as well on the retail grocery market.

To eliminate the competitive disadvantages resulting from the acquisition, SOK, HOK-Elanto, Pirkanmaan Osuuskauppa, Turun Osuuskauppa and S-Herkkukeittiö Oy commit themselves to continuing to make the purchases for Stockmann Delicatessen from Tuko until 31 December 2018. According to the agency’s estimate, the commitments will guarantee that the market structure of the procurement market for the grocery sector is retained at a level corresponding with the prevailing competitive situation.

FCCA’s decision issued today includes numerous business secrets of the parties involved. The decision cannot be published until the business secrets have been removed, i.e. in around two weeks’ time.