COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 55/LM/Aug04
In the large merger between:
Pioneer Foods (Pty) Ltd
and
Accolade Trading Company (Pty) Ltd
Non Confidential Version Reasons for Decision
________________________________________________________________
APPROVAL
On 22 September 2004 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Pioneer Foods (Pty) Ltd and Accolade
Trading Company (Pty) Ltd in terms of section 16(2)(a). The reasons for the
approval of the merger appear below.
The Parties
1. The acquiring firm is Pioneer Foods (Pty) Ltd (“Pioneer”), a wholly owned
subsidiary of the Pioneer Food Holdings Ltd.
2. The primary target firm is Accolade Trading Company (Pty) Ltd controlled
by Mr C M Abrams. It’s privately owned and located in the Western Cape.
The Merger Transaction
3. Pioneer is acquiring the entire business as a going concern, including
assets, goodwill, intellectual property and debtors.
Rationale for the Transaction
4. [ CONFIDENTIAL ].
The relevant product markets
5. Accolade’s business comprises the purchasing and packaging and selling
of dried beans, rice and peas as well as other edible foodstuffs. Pioneer is a
highly diversified food group, comprising three business divisions – staple
foods; branded products and another “unallocated” division which includes
carton manufacturing, insurance and corporate services.
6. Both parties are therefore engaged in packaging and distributing
various foodstuffs, in particular we are concerned here with the overlapping
products, namely rice and coconut.
7. The Commission therefore correctly defined the market as that for
the packaging and distribution of rice on the one hand and coconut on the
other. We therefore need not analyse any of the other markets in which
each party is active.
COMPETITIVE ANALYSIS
A. The market for the packaging and supply of Rice
8. All of the rice consumed in South Africa is imported from India and
Thailand. There are no import duties on rice therefore many informal
players are able to import rice relatively easily. They will repackage the rice
or sell direct to wholesalers, many of them are small and compete in the
KwaZulu Natal and Western Cape areas where there is an increased
demand for rice amongst certain communities.
9. Pioneer sells rice under the “Nice” and “Select” brands whilst Accolade sells
predominantly in the Western Cape under the “Spekko” brand.
10. The Commission analysed the market narrowly, focussing only on parboiled rice,
which comprises the majority of rice consumed in South Africa. They therefore
excluded speciality rices ( including sushi and basmati). The Commission defined
the geographic market as national because since packaging and distribution
facilities are located in close proximity to the national ports, most market
participants can distribute their products nationwide. However, evidence
from the record indicates that the geographic market may in fact be
regional, since certain brands of rice are only distributed in certain regions.
Note, Nice Rice for example is only distributed in the Western Cape. 1 Also
7080% of Accolades’ business is conducted in the Western Cape.
Furthermore the parties indicated at the hearing that listing in supermarkets
1 See Record pages 132 and 138 .
was decided at a regional level.
11. We will not detain ourselves with the geographical extent of the market
since it is clear that there are no competition concerns arising in this
market.
12. The major players are Tiger Brands (the brand leader with “Tastic”) and
Umgeni Products. Pioneer sells its Select and Nice brands mainly in the
rural areas. It has not been able to reach large scale listing of its brands in
the mainstream retail market. The merged parties combined national post
merger market share is 9.5%. Tiger is the leader with almost 53%. If the
market is a regional one, the merged firm would have a very high market
share in the Western Cape.
Rice Market Shares
Region Pioneer (Sasko) Accolade Combined
Gauteng 0.1% 0.2% 0.3%
KZN 2.6% 0% 2.6%
Eastern
Cape
5.7% 1.2% 6.9%
Western
Cape
8.2% 42.2% 50.4%
North West 8.4% 0% 8.4%
Northern
Cape
25.2% 0% 25.2%
Free State 0.5% 2.3% 2.8%
Limpopo 0% 0% 0%
Source: Presentation to Pioneer Foods Board of Directors
13. However the large retail chains are unlikely to be dependant on a single
supplier and it is likely that Tiger and Umgeni will find that they have new
opportunities in the Western Cape post merger. Secondly, given Pioneer’s
objective to become a national, rather than a regional player, it is likely to
divert some of its product northwards to get its brands established in those
markets. In short although the markets may have been regional premerger
they may not be so post merger. In addition the Commission found that
barriers to entry into the market for the packing and distribution of rice are
low. The smaller players who import rice and repackage and sell to
wholesalers, located mainly in W Cape and KZN are testimony to this.
14. We agree with the Commission that in view of the low entry barriers and
insignificant combined market share, this market presents no competition
concerns.
B. The market for the packaging and supply of Coconut
15. Coconut too is imported mainly from the East – the Philippines, Singapore
and Indonesia. The product is dessicated coconut 2, used mainly in
breakfast cereals, sweets, baked goods and as accompaniments to certain
ethnic dishes, such as curries. The parties referred to fine and medium
grated coconut, which are functionally distinguishable, the latter being used
as toppings whereas the former is preferred because of the taste and
texture it profers in baked goods. However, the distinction is insignificant
and therefore for our purposes, we will treat the two as interchangeable.
Pioneer sells coconut through its recently acquired “Moirs” brand, while
Accolade sells it via its “Imbo” brand. The parties’ primary customers are
the retail chains and wholesalers.
16. Though raw grated coconut is potentially a substitute, this was excluded
from the Commission’s analysis and they evaluated the narrower market to
see if any competition concerns arose.
17. Once again in respect of this product, the commission concludes that the
market is national.
18. According to the major retailers, there are only three players in this market
– Pioneer (Moirs), Accolade and Trumps. During the hearing it emerged
that in fact Tiger Brands (through its “Star” brand) was also a player in this
market, even though it only had a small market share, of around 4% based
on value.
19. The merged entity’s combined market shares based on AC Nielsen is:
Based on value: 70.3%
Based on volume: 66.3%
20. The Commission concluded that Accolade is an aggressive price setter,
since it holds the majority of its market share based on volume. It prices low
and sells high volumes. This is confirmed by the fact that its prices are over
50% cheaper than Moirs.
50% cheaper than Moirs.
21. Though on any textbook definition, this merger would raise competition
concerns, we do not find that there will be a substantial prevention or
lessening of competition in the market for the packaging and distribution of
2 Dessicated coconut is defined as being “obtained by drying ground or shredded coconut kernel after
removal of brown testa. It finds extensive use in confectionaries, puddings and many other food preparations
as substitute for raw grated coconut.” (Coconut Development Board Project Profiles – coconutboard.nic.in)
coconut for the following reasons:
21.1 Postmerger there will still be three competitors in the market via the
formal retail chains, that is the merged entity’s Moirs brand, Trumps
and Tiger Brands’ Star.
21.2 Statistics obtained from SARS furnished by the merging parties at
the hearing reflected that of the total tonnage of dessicated coconut
imported into the country, the merged entity’s combined share
thereof is only 19%. The other 81% of the product imported is
distributed or consumed outside the formal retail trade. 3 The parties
advised that this would comprise industrial users such as
confectionary manufacturers and estimated that approximately 57%
of this figure was taken up by the informal trade, more especially
traders in KwaZulu Natal and the Western Cape who distributed
coconut for the ethnic cuisine trade. The Commission confirmed that
in those markets where most of the coconut is sold, that is, the
Western Cape and KZN, there are smaller competitors, not captured
by Nielsens, who supply specialist retailers in those regions. This
indicates that barriers to entry, particularly in the lowerpriced brands
were relatively low. The Commission’s view is that imports of
packaged coconut are a further potential source of competition to
the merged entity. Accordingly, notwithstanding the existence of two
other players, if the combined entity tried to raise prices, a new
entrant could enter quite easily and capture market share at the
expense of the merged entity.
21.3 Another factor persuading us that this merger will not be anti
competitive is that dessicated coconut is a relatively marginal
product in the sense that it is not a musthave for many consumers,
rather, it is an addon. The parties’ stated that topend sales via the
rather, it is an addon. The parties’ stated that topend sales via the
formal retail chains are by consumers who purchase mainly for
baking purposes, and therefore not in large volumes or with regular
frequency. In those regions where there is great demand for
dessicated coconut, such as KwaZulu Natal and the Western Cape,
there do seem to be other informal means of distribution channels
available and entry into the distribution market is not constrained in
any way.
Conclusion
We conclude that the merger will not lead to a substantial lessening of competition
in the market for the packaging and distribution of either rice or coconut.
3 AC Nielsen only captures sales statistics of the top line retailers.
The Tribunal therefore approves the transaction unconditionally. There are no
public interest concerns which would alter this conclusion.
_____________ 4 October 2004
D. H. Lewis Date
Concurring: N. Manoim, T. Orleyn
For the merging parties: Jan S. De Villiers Attorneys
For the Commission: M. van Hoven, Competition Commission