In a first for the Office for Competition within the MCCAA (“OfC”), a Phase II decision was issued by the Maltese Competition Authority on the 5th June 2020 giving the green light to a proposed Joint Venture (“JV”) between Retail Marketing Limited, Co-op Trading Company Limited, Polrem Limited, S. Borg & Sons Limited, Tower Supermarkets Complex Limited, Valyou Pendergardens Operations Ltd., Belleview Supermarkets Co. Ltd and Valyou Supermarket Limited, operators of Lasco, Trolees, Valyou Pendergardens, Valyou Mellieha, Tower and Park Towers supermarkets chains.

Following the original concentration notification filed back in December 2019 and a Phase I decision where the OfC held that the full-function JV could lead to a “substantial lessening of competition”, the OfC initiated Phase II proceedings in terms of the Control of Concentrations Regulations (S.L 379.08) to assess the proposed concentration, given the serious doubts raised on the legality of the proposed concentration.

In its Phase II investigation, the OfC carried out a wide-ranging information-gathering process with operators in the field and defined the relevant (i) geographic and (ii) product market with the objective of deciding whether the proposed concentration would lead to a substantial lessening of competition. In its consideration of the relevant geographic and product market the OfC considered that:

1. There is a distinction between (i) convenience type local grocery stores and (ii) supermarkets /discounters with an area in excess of 200 square metres. The OfC also held that the aggregate market share of the notifying parties in the retail store outlets having a sales area over 200 sqm in Malta was of around 10-15%.

2. In the case of the local geographic market – and from market research conducted by the OfC – it was estimated that Maltese consumers were willing to drive on average 12.8 minutes to get their groceries. Accounting for traffic and congestion in Malta, the relevant geographic market was estimated at 8.5 km from every town centre, increased to 10 km to account for a margin of error. The OfC then defined the relevant geographic market by locating every supermarket in the proposed concentration and identifying all other retail grocery stores exceeding 200sqm which fall within a 12.8 minute drive/10 km radius. This was then used to compute the relevant market shares for each supermarket in the proposed concentration.

3. In quoting the Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, the OfC held that:

“Concentrations which, by reason of the limited market share of the undertakings concerned, are not liable to impede effective competition may be presumed to be compatible with the common market. Without prejudice to Articles 81 and 82 of the Treaty, an indication to this effect exists where the market share of the undertakings concerned does not exceed 25 % either in the common market or in a substantial part of it.”

Since the notifying parties did not exceed a 25% market share (except in the case of Tower Supermarket which accounted for 35% of its relevant market) the OfC concluded that the proposed concentration would not create a ‘significant lessening of competition’. In quoting the UK OfT, the OfC held that where combined market shares are less than 40% then these should not give rise to competition concerns.

4. In determining the ‘relevant product market’ the OfC considered that:

  • Price – A store was deemed to impose a competitive constraint when the price of at least 30% of a selection of products was ”approximately equal to” the prices charged by the supermarkets concerned.
  • Range – stores were deemed to impose a competitive constraint on their competition, if they offered a range of products which was similar to the range offered by supermarkets involved in the proposed concentration.
  • Service – stores that belong to the same product market as the supermarkets involved in the proposed concentration must offer at least some similar services deemed to be desirable by consumers. In particular, a store was deemed to impose a competitive constraint on the supermarkets involved in the proposed concentration if it had at least three of a selection of characteristics which make up the product offering (g. opening on a Sunday, customer support, parking, discounts and special offers, etc.).

Stores which imposed a competitive constraint on at least 2 out of 3 of the above were deemed to be part of the relevant product market.

Based on the above conclusions and on the assumption that the proposed concentration would lead to (i) improved price and competition (ii) investment in quality management including professional management structures (iii) investment in labour resources through training and improvements in IT systems (iv) improved working environment for personnel and investment in higher health and safety standards and (v) higher standards for employees, job creations and better financial package, the OfC concluded that the proposed concentration did not raise serious doubts or concerns and was therefore a lawful concentration.