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METRO/AGM merger: Approved by Cartel Court with structural remedies

The merger concerns the acquisition of AGM by METRO and was notified to the Austrian Federal Competition Authority (“AFCA”) on 2 September 2021. The deadline for completion of the Phase I review and the filing of a request for examination by the Cartel Court was 30 September 2021. During its investigations, the AFCA identified competition concerns, as a result of which the planned merger could not be cleared by the Authority in the notified form. The notifying parties did not offer any remedies to dispel the concerns. The AFCA and the second official party, the Federal Cartel Prosecutor, therefore each submitted a request for examination to the Cartel Court (Phase II, 25 Kt 8/21w - 84 and 25 Kt 9/21t) on 30 September 2021, thereby initiating an in-depth review of the merger by the Cartel Court.

In its request for examination, the AFCA argued that the merger in the food wholesale industry, in which both notifying parties are actively engaged, would fulfil the presumption of single market dominance as defined in § 4 para. 2 no. 1 of the Federal Cartel Act (KartG) owing to increases in market shares.

The Cartel Court sought an expert opinion on the relevant market. The expert opinion confirmed the competition concerns in relation to two locations. The notifying parties subsequently offered structural remedies to the Cartel Court in order to permanently counteract negative changes in the two local markets. In contrast to behavioural remedies, which involve ongoing action, structural remedies involve a direct, one-off and usually stricter intervention in the market structure after the merger, and are therefore usually also more effective than behavioural remedies, which need to be monitored on an ongoing basis to dispel competition concerns. This was the case here. The remedies affect two (2) locations:

  • Bludenz and
  • Klagenfurt,

which now have to be ceded to competitors.

The Cartel Court decision of 24 March 2022, which was served on 28 March 2022, became final with effect from 26 April 2022.

Background information

On 2 September 2021 the AFCA was notified of an intended merger (Z-5650) that involved METRO Cash & Carry Österreich GmbH (“METRO”) acquiring sole control over C & C Abholgroßmärkte Gesellschaft m.b.H. (“AGM”) in agreement with REWE Group.

METRO operates twelve (12) wholesale food markets in Austria at locations in:

  • Dornbirn
  • Graz
  • Klagenfurt
  • Langenzersdorf
  • Linz
  • Rum near Innsbruck
  • Salzburg
  • St. Pölten
  • Vösendorf
  • Wels
  • Wien-Simmering and
  • Wiener Neustadt.

METRO serves the customer groups hospitality (hotels, restaurants, bars, cafes and caterers), traders (independent resellers such as small groceries, kiosks and filling stations), as well as professional service providers and organisations such as offices and institutions.

AGM is in the wholesale food business and specialises in supplying hotels, and providing general and communal catering in the form of an integrated collection and delivery service at currently twelve (12) locations in Austria.

The planned merger covers nine (9) AGM wholesale markets at locations in:

  • Bludenz
  • Graz
  • Hartberg
  • Klagenfurt
  • Liezen
  • Neusiedl
  • Spittal an der Drau
  • St. Pölten and
  • Wiener Neustadt.

Two (2) of these AGM locations – Bludenz und Klagenfurt – will now have to be ceded to competitors.

Extensive AFCA market inquiry

To better define the market, the AFCA conducted an extensive market inquiry during its Phase I investigation (see also AFCA’s press release of 2 September 2021, available in German), also submitting the results to the Cartel Court.

The market inquiry was carried out in two stages:

  • In an initial request for information, the AFCA put 65 questions to about ten full-assortment competitors of METRO and AGM. Most of the competitors voiced serious concerns.
  • The second request for information with up to 87 questions (which were logical extensions to the initial answers and in reality totalled less for each customer) were sent to around 1,200 large and small hospitality customers. The response rate of 400, which the AFCA found very high, underlined the market’s interest in the matter. The customers’ concerns differed depending on the location.

Market definition

In the course of its examination of the merger, the Cartel Court also looked into market definition and potential market dominance as part of the expert opinion.

Three data sources were used for the empirical analysis:

(i) the customer questionnaire data collected by the AFCA

(ii) transaction data at product/monthly level

(iii) individual transaction data.

In this specific case, the Cartel Court assumed a relevant common product market for delivery and collection in the full-assortment wholesale industry. The relevant geographic market is local and limited to a uniform catchment area of 75 kilometres by road from the locations.

While the Cartel Court found “collection” and “delivery” to be substitutable, it ruled out substitutability between the full-assortment wholesale industry and other sources of supply such as food retailers, specialised wholesalers or food manufacturers. From a competition perspective, an exogenous definition based on distance is preferred over an endogenous limit based on sales for the relevant geographic market. The catchment area for the respective location was calculated as a distance of 75 kilometres by road, based on competition analysis of the data.

Due to these changed circumstances and the market inquiry conducted by the AFCA, the existing position paper on market definition (available in German) will have to be adapted accordingly.

Presumption of dominance

The regions of Vorarlberg and Carinthia are the most affected by the present merger in terms of competition. As a consequence of the merger, these regions will encounter a marked increase in local market concentration (measured in terms of HHI delta) with the 30% market threshold being significantly exceeded. The merged entity would achieve a market share of between 35% and 40% in these markets. Due to the 30% threshold being significantly exceeded in both regions, the existence of a market dominant position was presumed in both Vorarlberg and Carinthia (presumption of single market dominance). Specifically, this concerned the AGM Bludenz/METRO Dornbirn and AGM Klagenfurt/METRO Klagenfurt locations.

Structural remedies

The structural remedies proposed by the notifying parties, which relate to the AGM Bludenz and AGM Klagenfurt locations, mean that the merger will neither cause nor strengthen a local market dominance. The remedies permanently counteract negative changes in the two local markets that would otherwise result from a METRO takeover of the AGM Bludenz and Klagenfurt locations.

The remedies are summarised in the preamble of the commitments document. To ensure that the remedies will have the intended effect on competition, some parts of the commitments have been marked as “confidential” and will only be published when – in the AFCA’s view – the information is no longer likely to negatively impact that effect.

Commitments BWB/Z-5650 (available in German)

Food wholesale is of great importance to the hospitality sector and consequently consumers too. The sector has been especially affected by the current challenges. The AFCA has therefore focused particularly strongly on the effects of this merger on competition. The agreed commitments both dispel competition concerns and ensure that the locations are maintained for competitors,” explained Deputy Director General Harsdorf-Borsch.