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NESTLE (SA) (PTY) LIMITED / PETS PRODUCTS (PTY) LIMITED / HEINZ SOUTH AFRICA (PTY) LIMITED / TIGER FOODS LIMITED (21/LM/Apr/01) [2001] ZACT 23 (18 June 2001)
.RTF of original document
COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 21/LM/Apr01
In the merger between
NESTLE (SA) (PTY) LIMITED
and
PETS PRODUCTS (PTY) LIMITED
and
HEINZ SOUTH AFRICA (PTY) LIMITED
and
TIGER FOODS LIMITED
(“the parties”)
Reasons for the Competition Tribunal’s Decision
APPROVAL
1.
On 31 May 2001 we approved the merger between the parties subject to certain conditions in terms of section 16(2)(b) of the Competition
Act 89 of 1998. We deal with the reasons for our decision below. To give full effect to the conditions attached to the merger approval
we felt that it was necessary to keep some of them confidential and known only to the parties and the Commission and ordered accordingly.
Since the reasons for our decision constitute a public document there will be no reference in it to the confidential conditions.
The non-confidential version of our order is annexed hereto.
THE MERGER TRANSACTION
2.
Nestle (SA) (Pty) Limited (Nestle), a wholly owned subsidiary of the Swiss-based Nestle S.A company, is acquiring all the issued share
capital in Pets Products (Pty) Limited (Pets Products) together with the shareholders loan accounts. Heinz South Africa (Pty) Limited
(Heinz SA) and Tiger Foods Limited (Tiger Foods), both companies incorporated in South Africa, hold 51,1% and 49,9% of the issued
shares in Pets Products, respectively. Accordingly Nestle SA is acquiring the shares from Heinz SA and Tiger Foods.
3.
Pets Products manufactures and sells wet pet food. It also sells dry pet food manufactured for it by third party contractors. The
majority of its products are sold through the retail sector under the brands Butch, Husky, Dogmor, Catmor, Pamper, Catz d Lite and
Happy Cat. Its manufactures its wet food products at its factory in Cape Town.
4.
Through a wholly owned subsidiary, Friskies Petcare (Pty) Limited, Nestle is involved in the manufacture and sale of dry pet food
and imports and sells wet pet food in South Africa. Nestle sells pet food to the retail sector under the Friskies, Epol, Felix and
Fancy Feast brands and under the Epol, Olympic and Expert brands to the non-retail sector. Its manufactures its dry food products at its factory in Pretoria.
BACKGROUND TO THE PET FOOD INDUSTRY
5.
The merging firms are both involved in the manufacture and distribution of pet foods specifically for cats and dogs. The total retail
value of this market is estimated to be R 1,4 billion. The products in this market are differentiated first as between cat and dog
and secondly between dry and wet. Maize is the major component in dry products and is usually sourced locally. Dry pet food constitutes
72% of the sales in the pet food market. Wet products are essentially based on meat offal, or fish, but contain a cereal component.
Over 60% of the wet food raw material is imported or contains imported components. Wet food is typically sold in cans. Wet products
constitute about 28% of sales (in value) in the pet food market. Dog food constitutes 93 % of the market in volume (as opposed to
value). Imports account for approximately 7 % of pet food sales.
6.
Industrial pet food is sold through both retail and non-retail channels with the retail sector comprising 69.63 % of the total market.
THE COMMISSION’S RECOMMENDATION
7.
The Commission recommended that this merger be approved unconditionally.
The Parties’ Submissions
8.
The parties defined the relevant product market as comprising the sale of all pet food in South Africa. They submitted that dry and
wet pet food is interchangeable and therefore belongs in the same market. They also claimed that the majority of pets in South Africa
are still fed home-cooked food or table scraps and as a result, it is premature to segment the market at this stage. The market for
pet food is still growing and the focus of the parties at the moment is persuading more pet owners to switch to industrial pet food,
as opposed to table scraps, without distinguishing between dry and wet pet food.
9.
If the market comprises all industrial pet food as the parties contend, Pets Products would have a market share of 18% and Nestle
a share of 10,5%. Accordingly the merger would result in a market share of 28,5% for Nestle. The next largest competitor Masterfoods
has 23,1% of the market and thereafter the fourth largest firm is Nola who have 6,7%. The parties submitted that the merger was not
likely to result in competition concerns because even post merger their combined market share was relatively low. Furthermore, they
argued that the market had very low barriers to entry, there was a strong degree of countervailing power possessed by their customers
in the retail sector and they also faced competition from imported products. They pointed out that there are a large number of small
firms in the market, albeit not necessarily national players, who constitute a competitive threat to the larger firms. The parties
submitted that all these factors diminish any likelihood of the merger lessening competition.
The Commission’s Analysis
10.
The Commission found that there is a clear distinction between:
10.1.1.
cat and dog food;
10.1.2.
dry and wet pet food;
10.1.3.
dry pet food sold through the retail channel and dry food sold through non-retail channel; and
10.1.4.
wet pet food sold through the grocery channel and wet pet food sold through the non-retail channel.
11.
Based on the above findings the Commission segmented the relevant product market into eight sub-markets consisting of the following:
11.1.1.
dry dog food sold through the retail channel;
11.1.2.
dry dog food sold through the non-retail channel;
11.1.3.
wet dog food sold through the retail channel;
11.1.4.
wet dog food sold through the non-retail channel;
11.1.5.
dry cat food sold through the retail channel;
11.1.6.
dry cat food sold through the non-retail channel;
11.1.7.
wet cat food sold through the retail channel; and
11.1.8.
wet cat food sold through the non-retail channel.
12.
Table 1 below shows each participants’ market share in respect of sales value in each of the relevant sub-markets as identified
by the Commission:
|
WET CAT FOOD |
DRY CAT FOOD |
WET DOG FOOD |
DRY DOG FOOD |
Name of party |
Retail |
Non-retail |
Retail |
Non-retail |
Retail |
Non-retail |
Retail |
Non-retail |
| Nestle |
2,4% |
----- |
33,1% |
3,8% |
----- |
3,5% |
13,5% |
7,4% |
| Promeal |
4,2% |
----- |
----- |
----- |
7,8% |
----- |
----- |
----- |
| Hills |
----- |
37,5% |
----- |
22,1% |
----- |
28,9% |
----- |
16,8% |
| Iams |
----- |
26,9% |
----- |
35% |
----- |
3,5% |
----- |
17,8% |
| Nola |
----- |
----- |
1.1% |
0,1% |
----- |
----- |
13% |
6,6% |
| Senwes |
----- |
----- |
----- |
----- |
----- |
----- |
2,8% |
----- |
| Others |
0,4% |
----- |
4,7% |
1,5% |
2,8% |
----- |
36,9% |
4,2% |
| TOTAL |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
Table 1.
13.
The shares of the merged entity in the various sub-markets will therefore be as follows:
|
WET CAT FOOD |
DRY CAT FOOD |
WET DOG FOOD |
DRY DOG FOOD |
|
Retail |
Non-retail |
Retail |
Non-retail |
Retail |
Non-retail |
Retail |
Non-retail |
Table 2
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