Rationale for the Transaction
7.
Furnex is disposing of the business to Massmart, which promises greater benefits to members
in the form of improved prices, rebate structures and settlement discounts. In addition, Furnex will be able to benefit from Massmart’s
expertise in merchandising, marketing and advertising, thereby contributing to increased shareholder value. By contrast, Massmart
intends acquiring information technology skills, as well as gaining access to wholesaling activity in the furniture and appliance
industry. Despite having a strong presence in the retail appliance industry, Massmart does not presently have a foothold in the wholesale
portion of this market. The merger will also allow both Shield and Furnex to exploit synergies between their similar business models,
as well as generally achieving greater shareholder value.
The relevant product market
8.
Each Massmart subsidiary is either involved in grocery or general merchandise or both, and operate in either the wholesale or retail
markets, or both, as set out below:
Table 1: Profile of Massmart Subsidiaries
|
Grocery |
General Merchandise |
Wholesale |
Retail |
| Makro |
? |
? |
? |
? |
| Brown’s & Weir’s |
? |
|
? |
? |
| Shield Buying and Distribution |
|
? |
? |
|
| Massdiscounters (Game & Dions) |
|
? |
|
? |
| Jumbo Cash and Carry |
? |
? |
? |
? |
Source: Company Info and Parties’ Competitiveness Report
9.
While Massmart procures a range of general and grocery merchandise, Furnex is not involved in grocery products at all. They only buy general merchandise, namely furniture, white goods and other products such
as hi-tech products, household appliances, clothing, DIY equipment, office supplies and cellular services. Massmart do not wholesale
appliance products, only a small amount of hi-tech products and cellular service products.
10.
According to the parties, the customer profile of the parties differs - the target market for Furnex
is the independent furniture and appliance retailer while that for Massmart wholesalers is the independent food and liquor retailer
or wholesaler. (
11.
Indeed Massmart is more involved specifically in grocery products at the retail level, rather than
at the wholesale level. According to the Commission, the only firms in the Massmart stable that trade at the wholesale level with
general merchandise are Shield and Makro.
12.
The Commission accordingly identifies the area of overlap as being general merchandise, specifically
the wholesale of cellular handsets, recharge vouchers and starter packs.
13.
The parties define the relevant market as that of wholesaling furniture, appliances and hi-tech
products and cellular recharge vouchers through buying groups or alternative wholesaling companies to independent traders in the
furniture, appliance, and hi-tech industries throughout South Africa.
14.
This latter market definition is somewhat broad, in that while having a small share in the retail
furniture market, Massmart is not involved in the wholesaling of furniture whatsoever. Nor is Massmart active in the appliance wholesale
market, save to a limited extent, in the high-tech appliance market. We therefore define the market as that of wholesale of high-tech
products and cellular recharge vouchers.
Geographical Market
15.
The Commission regards the geographical market as regional (approx. 250 km radius) because general
merchandise is not as high-turnover intensive as grocery products. We have no reason to dispute this definition.
Impact on competition
16.
Despite confining the relevant market to that of the wholesaling of hi-tech appliances and recharge
vouchers, it is useful to use an industry analyst’s figures based on the total turnover of the entire retail appliance market,
to serve as a proxy for an estimate of their post-merger wholesale market shares.
Table 2: Market Shares in the Wholesaling of Appliances and Hi-tech Product Category
Source: Perry & Associates Market Report
17.
Furnex’s market share in the market for the wholesale of appliances and
high-tech products is some 8%. Massmart’s market share is 27% Though post-merger this would yield a combined market share of some 35%, our concerns were eased by the fact that post-merger the members are not contracted-in to Furnex and are free to procure their suppliers
from other buying groups or wholesalers. We were advised that Furnex members were also members of rival buying groups and that they
would be free to continue to do so in the future. Furthermore, the parties assured the Tribunal that barriers to entry into this
market are low, as evidenced by the rapid emergence of other buying groups over the last few years. Furnex competes with other buying groups such as the Shaw Group, ISER and Group Appliances, as well as importers, agents and manufacturers
supplying directly to independent retailers.
Table 3: Buying groups: Appliance and High-Tech Appliances
| INSTITUTION |
ESTIMATED MARKET SHARE |
| The Shaw Group |
33% |
| Furnex Stores |
22% |
| ISER |
28% |
| Group Appliances |
17% |
| TOTAL |
100 |
Source: Parties’ Competitiveness Report
18.
Taking the parties’ estimates of market share figures in the cellular recharge voucher category
alone, the market shares appear as follows:
Table 4: Market Shares in the Wholesaling of Cellular Recharge Vouchers Product Category
Source: Parties’ Competitiveness Report
19.
We accept the submissions that this market is subject to effective competition both directly from
the manufacturers and the retail stores themselves, who can source the products from MTN, Cell C and Vodacom direct.
20.
There is furthermore no danger of the combined entity exerting pressure on the suppliers, both of
hi-tech appliances and cellular services, since they are all large companies who have the option of distributing their products via
other channels.
Conclusion
The Tribunal endorses the Commission’s finding that this transaction will not substantially lessen or prevent competition in
the relevant market and accordingly approves the transaction unconditionally. There are no public interest concerns which would alter
this conclusion.
_____________
15 May 2002
D.H. Lewis
Date
Concurring: N. Manoim, U. Bhoola
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