On 7 February 2013, the ACCC issued a statement of issues outlining its concerns in relation to the proposed acquisition by Heinz of local infant food producer Rafferty’s Garden, which would see the merger of the top two suppliers, resulting in a market share of around 78% of wet baby food and 70% of dry baby food.
In its investigation, the ACCC reached the preliminary view that the proposed acquisition is likely to substantially lessen competition in the wholesale markets for the supply of both wet infant food and dry infant food and as it would result in the removal of a vigorous and effective competitor of Heinz. In particular, the ACCC noted that while Heinz is the historic market leader, Rafferty’s participation has been marked by its innovation in a number of non-price aspects of wet infant food, such as branding, packaging design, product quality and flavours.
As King & Wood Mallesons partner Stephen Ridgeway advised GCR, “The ACCC’s findings that Rafferty’s Garden is the closest and most effective competitive constraint on Heinz and that there are significant barriers to entry and expansion in the market do not bode well for approval. The wet and dry infant food markets are clearly important and price-sensitive consumer markets. Unless some substantial remedy can be offered that addresses these issues while retaining commercial feasibility for the deal it is hard to see the ACCC changing its position.”
As well as being of interest to all parents of young children introducing solids, the ACCC’s view as set out in the statement of issues is of note because it states that major supermarket chains are unlikely to have sufficient countervailing power to constrain the merged entity. This is interesting in the context of the Commission’s ongoing investigation into the treatment of suppliers by the major supermarket chains, which Chairman Rod Sims has made clear includes allegations of misuse of market power as well as allegations of unconscionable conduct. In a Senate Estimates hearing on 13 February 2013, Mr Sims confirmed that the ACCC is making use of its compulsory powers to collect evidence.
The ACCC has stated that its further market inquiries should be completed by 28 February 2013, and that it expects to make a final decision on 21 March 2013. Any interested market participant interested in making a submission should do so by 28 February 2012. We can help.
