15.
On this basis the Commission concluded that the relevant market is that for the retail of grocery products, including halaal products,
to lower- and middle-income consumers.
16.
The merging parties however contended that the retail market for halaal food products is a separate
product market and therefore does not compete with the products retailed by Shoprite, Pick ‘n Pay, or any of the other large
retail chains. They argued this on a number of grounds.
17.
Firstly, they contended that supply-side substitution was not a given, as the Commission argued.
To sell halaal foodstuffs, retailers have to comply with strict processes and anti-contamination procedures both at the abattoir
level and during the sorting and food storage processes. Furthermore, Foodworld stores prepare and produce their own foods from scratch
and do not buy pre-packed halaal foods, as do Woolworths and Pick ‘n Pay. The parties argued that at Foodworld stores Muslim
consumers were sure that they could purchase foodstuffs free of contamination, whereas at Shoprite stores, the customer had to go
to the trouble of first checking the label.
18.
From a demand perspective, the parties contended that 22% of Muslim shoppers surveyed at four Foodworld
outlets indicated that they would not support a non-halaal store. The survey also showed that a further 35% would only shop at non-halaal stores for non-food or “dry goods” items.
19.
Secondly, the parties contended that the difference in the number of product lines offered by Shoprite
and Foodworld stores was so great that they could not be considered competitors from a consumer perspective. Shoprite stores stocked
products, which Foodworld stores simply did not stock. Further, Shoprite stores did not provide a full halaal offering. However,
the parties did concede that there is a significant overlap between the product lines carried by Shoprite and Foodworld.
20.
The parties maintained, as support for their argument that Shoprite and Foodworld compete in different
markets, that Foodworld could successfully increase its prices above those of Shoprite. This, they contended, was possible because
of the specific halaal nature of the Foodworld business and because of the convenience of the location of Foodworld’s stores
to its Muslim customers. They stated that research they had conducted indicated that Foodworld’s prices were some 6% higher
than those of Shoprite.
21.
Finally, the parties produced evidence to show that on average 80% of Foodworld’s customers,
who are typically low-income, walked to Foodworld‘s outlets to do their shopping whereas Shoprite shoppers typically used their
own motorised transport. This, they argued, indicated that Foodworld ‘s customers would only shop at stores in close proximity
to their homes. Therefore, Foodworld’s customers could only substitute within a geographic radius of a maximum of 1-3 kilometres
from each outlet. Since there were no Shoprite outlets in the geographic areas where Foodworld’s outlet were located, there
could be no product overlap. If there was a 5-10% price increase, these “foot-bound” customers would not travel more
than 3 kilometres from the nearest Foodworld store in order to shop elsewhere.
22.
We agree with the Commission’s product definition of the market as extending to a more general
market for grocery retailing. We are not convinced that Muslim customers refrain from shopping at Shoprite stores, or any other general
retailers, provided that they are halaal-certified. The ease of obtaining certification is confirmed by the Muslim Judicial Council,
which states that all the major supermarket chains, including Shoprite, Pick ‘n Pay and Woolworths in the Western Cape, are
certified by the MJC Trust. These requirements are monitored regularly by inspectors from the MJC. It is in fact clear that Muslims are free to shop at any store provided that halaal foods are completely separated, and that there
is no contamination.
23.
From a demand perspective it appears that Muslim consumers shop without inhibition at non-halaal
stores for items other than food but acquire their halaal products, such as meat, from halaal stores. Realistically, most consumers,
even in low-income areas, have access to public transport which allows them to commute when necessary to buy their groceries, either
to regional shopping centres in the general vicinity of their homes or into towns or city centres, where a large proportion work. Furthermore nothing would prevent non-Muslim customers from shopping at halaal stores, especially if prices there were more favourable or if “specials” were offered.
In the circumstances, the proportion of consumers who would shop only at Foodworld stores and nowhere else, is relatively insignificant.
24.
We do not regard the fact that halaal consumers would have to go to the trouble of checking labels,
as a factor signifying a lack of substitutability, as the merging parties would have us believe. The Commission found that the MJC
certifies stores as halaal if non-halaal and halaal products are kept separate and free of contamination. Other methods, including
labels, are employed to guarantee Muslim shoppers’ peace of mind, such as having Muslim representatives on site to monitor
compliance; monthly auditing by the MJC, other inspections, and the availability of supermarket staff who provide information to
satisfy shoppers that halaal standards are being adhered to.
25.
There is clearly an overlap between product lines that Shoprite and Foodworld carry. As stated earlier,
Foodworld estimates that 20% of its total turnover is derived from the sale of halaal products. The Commission contended that the remaining 80% of its turnover emanated from products which overlapped with those of a general retailer
like Pick ‘n Pay or Shoprite. At the hearing Counsel for the merging parties disputed this, contending that only 15-20% of
the lines would overlap. However we are not convinced by their submissions on this issue in light of the fact that Foodworld itself
went on record to state that it competed with the big retail chains.
26.
We also find it significant that, at the hearing, Shoprite’s spokesman, Mr Goosen appeared
to concede that Shoprite, which is already in the business of halaal foods on a limited scale, competed in relation to them with
other large retail chains:
“CHAIRPERSON: But certainly in those stores where you’re going to maintain the Halaal format you may be able to raise prices on the basis
of Mr Pretorius’ submissions?
MR GOOSEN: Ja if there’s ... if there’s a unique product that does not get sold by our main opposition being Spar or Woolworth’s, Pick n Pay and all the other formal chains we would probably be able to raise the price and we will certainly do that. We will take extra margin on those products but like Mr Pretorius explained there’s a few ... few products that is unique to
the FoodWorld stores where we will able to do that ….. The bulk of those stores will have competitive pricing similar to that
of Shoprite.”[our emphasis added]
Geographic Market
27.
Foodworld operates in the Western Cape, primarily the Cape peninsula, but has one store in Paarl.
Shoprite has outlets nationwide. Therefore, the overlap occurs in respect of the Western Cape region.
28.
The Commission found that Shoprite does respond to local conditions in that it has regional buying
divisions each of which buys goods according to the requirements of its particular region. However, the Commission did not reach
a final conclusion on the boundaries of the relevant market and instead considered the extent of competition in each of the national,
regional and local markets.
29.
The Commission conducted its analysis of the merger on the basis that the relevant market is the
retail market for grocery products, including halaal products, to lower and middle-income consumers either nationally or within a
number of local geographic markets, each being the area immediately surrounding one of the target stores.
30.
The Tribunal considers that the relevant market is likely to be either regional, alternatively local.
It is not national since Foodworld does not operate outside the Western Cape. In fact, as previously mentioned, Foodworld identifies
its competitors as being the larger retailers in the Western Cape.
31.
We have previously held in similar mergers involving retail FMCGs that the geographic market is
local. We also note that the record contains a series of studies conducted by Douglas Parker & Associates, commissioned by Shoprite,
highlighting opportunities for new store development in various localities. A separate report and study is conducted for each of
the six locations in the Western Cape. This in itself tends to suggest that Shoprite itself contemplated a series of local markets.
32.
We do not consider it necessary to decide whether this market is regional or local because on either definition, no competition concerns arise.
Effect on Competition
33.
The Commission analysed market shares for the retailing of grocery products at the level of national,
regional and local markets in accordance with Table 1. However, as the Commission pointed out, the market shares do not differentiate
between income groups:
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