The Turkish Competition Board ("Board") published its reasoned decision1 concerning the acquisition of 34 stores of CarrefourSA Carrefour Sabanci Ticaret Merkezi A.S. ("CarrefourSA") located in Diyarbakir, Elazig, Erzincan, Hatay, Malatya, Mardin, Sanliurfa and Van by Migros Ticaret A.S. ("Migros") through the transfer of tenancy rights.
Before delving into its substantive analysis, the Board first defined the relevant product market as the transaction was expected to affect the competitive structure of the markets relating to the fast-moving consumer goods ("FMCG") organized retail sector, both vertically and horizontally. To that end, the Board found that the transaction is expected to have vertical effect as Migros` ultimate parent company, Anadolu Group, is active as supplier in the FMCG upstream markets, i.e., the alcoholic (off-trade beer) and non-alcoholic beverages market, the fruit and vegetables market, and the wholesale and retail markets; and horizontal effect in the organised FMCG retail market where Migros and Carrefour activities coincide.
The Board categorized the vertical markets that were expected to be affected by the proposed transaction in line with its previous decisions and defined the relevant vertically affected markets as "cola drink", "soda pop", "mineral water", "packaged water", "sparkling water", "fruit juice", "iced tea", "sports drink", "energy drink", "off-trade beer", "stationery equipment", "fresh vegetables and fruits" and "wholesale retail". The Board defined the horizontally affected market as the FMCG organized retail market.
The Board stated that the determining factor in defining the relevant geographic market in terms of the retail market is the consumer attraction field of the markets, in other words, how far the consumers travel to make their everyday purchases. As per the European Commission's decisions, the geographic market was determined as the areas within 10-15 minutes of driving distance, and these driving distances might vary based on the framework of the product market definitions that were divided into subcategories based on the store area. As a result of the assessment in the EU member countries, it was stated that on average, small supermarkets that are located within 5 minutes, medium-sized supermarkets that are located within 10 minutes, and large supermarkets (1000 square meters and more) that are located within 15 minutes of driving distance are able to create competitive pressure on other stores.
On the other hand, as stated in the Board's decision, definition of the geographical markets tends to narrow following the increased urbanization problems, traffic jam and parking spot deficiency. In this context, the Board found that in terms of the transaction, determining the specific districts where the subject stores were located as relevant geographical market would be in line with the approach taken in prior Board decisions. However, the Board indicated that increased concentration and consolidation alongside the changes in the structure of the organized FMCG retail sector in the recent years might necessitate narrower geographical market definitions to be defined. The Board highlighted that it was more important than ever to determine the presence of discount markets and regional/local retailers, which were seen as competitors to highly concentrated organized retail channels, are operating at sufficient numbers and accessible distances, to maintain the competitive structure of the market. The Board evaluated that in a sector that has been expected to continue experiencing progressively increasing concentration and has become more concentrated compared to the past, there were sufficient grounds for narrowing the geographical market definition.
Furthermore, the Board assessed that the stores with area between 0 - 400 square meters appeal to a narrower field in terms of customer attraction power due to the small scale of their sales area and said stores are most preferred by the customers who reside in 0 to 1000 meters of walking distance because of their physical capacity. Stores sized between 400 - 1000 square meters were acknowledged to have a wider field of attraction and in terms of these stores, 0 to 3000 meters of walking distances, both near and far, were designated as the geographical field. It was determined that stores with 1000 square meters or more sales area, which are subject of the transaction in this case, have wider customer attraction power than the other two groups of stores due to their physical capacity and the amenities available (some are located at shopping malls, offer parking areas etc.) and therefore, in terms of these stores, 0 to 5000 meters of distance was designated as the geographical field.
As for the supply market, which was the second market to be evaluated within the specifics of the case, the Board defined the relevant geographic market as "Turkey", since the market entry conditions, the access to supply sources, production, distribution, marketing and sale in terms of the product in the relevant product market did not differ on the regional scale.
The Board found that the transaction would cause both horizontal overlaps and vertical links. In terms of the markets expected to be affected horizontally, the Board stated that within the framework of principles in the Guidelines on the Assessment of Horizontal Merger and Acquisitions, the primary criteria to take into consideration in evaluating a merger and acquisition within the scope of Article 7 of Law No. 4054 are the parties' pre- and post-transaction market shares and the concentration level of the market. The Board stated that, in the competition law literature, market share thresholds in relation to the substantial lessening of competition in concentration, i.e., a market share of 50% or more is presumed to indicate the existence of a dominant position on its own, save for the exceptional cases. The Board also stated that competitive concerns may still arise due to the presence of certain other factors even in cases where the post-transaction market share of the undertaking remains below the 50% threshold. Within this specific case, the Board decided to set the critical threshold as 40% in terms of the districts as well as the narrower geographical fields that were within the relevant walking and/or driving distances.
In light of the foregoing, the Board calculated the market shares of the stores active in FMCG retailing market based on their sizes (sales area) as well as the relevant walking and/or driving distance and it conducted an HHI test in order to lay out the competitive effects of the transaction in the market. The Board came to the conclusion that the transaction would not raise any concerns since the concentration ratio of each specific store did not meet the critical threshold and thus the transaction would not significantly impede effective competition.
The Board also evaluated whether new entries to the market were possible. The Board stated that in the recent years no large-scale entries were recorded in the organized retail sector, growth was mostly seen by way of acquisitions, or new store establishments by chain stores mostly via the discount retail market channel. Although it is increasingly difficult to find a suitable area or a building as saturation point is being reached at important locations in big cities, since the market structure is mostly based on discount retailers opening a new store with a small sales area, the Board concluded that there were no difficulties for the existing competitors to increase their capacity by doing the same, due to the availability of suitable places and the ease of obtaining legal permits.
Furthermore, the Board evaluated the effects of the transaction in the vertically affected off-trade beer market. The Board stated that the beer market was subject to strict advertisement regulations. Therefore, the only engagement points of the consumers and the suppliers are the off-trade sales points and as a result of that, chain stores have become more important. In this respect, the Board found that Anadolu Group, the parent company of Migros, would have no incentive to foreclose Migros' and CarrefourSA's rivals by way of input foreclosure in the beer market and thus any concerns relating to the input foreclosure would not be realistic.
The Board further evaluated that although in theory it was possible for Migros` parent company to engage in customer foreclosure, Migros was likely to continue purchasing products from competitor suppliers in the upstream market in order to maintain its product range, as the variety of products in the store are considerable, and it is a desirable factor influencing consumer preferences. Taking this into account, the Board found that the transaction would not cause any customer foreclosure effecs in the beer market.
All in all, the Board ultimately found that the transaction would not significantly impede effective competition and thus unconditionally approved the proposed transaction. The Board's reasoned decision provides a thorough analysis and constitutes a valuable resource for competition law practitioners, given that it provides detailed assessment with regards to the geographic market definition.
This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2021. A link to the full Legal Insight Quarterly may be found here.
Footnote
1. Turkish Competition Board's CarrefourSA/Migros decision dated May 4, 2021, 21-25/307-140.
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