[Federal Register Volume 64, Number 128 (Tuesday, July 6, 1999)]
[Notices]
[Pages 36356-36359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16993]
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FEDERAL TRADE COMMISSION
[Docket No. 9910075]
Shaw's Supermarkets, Inc., et al.; Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before September 7, 1999.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pennsylvania Avenue, NW, Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Phillip Broyles, FTC/S-2105, 601
Pennsylvania Avenue, NW Washington, DC 20580, (202) 326-2805.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, Sec. 2.34 of the
Commission's Rules of Practice, 16 CFR 2.34, notice is hereby given
that the above-captioned consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of sixty (60) days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for June 28th, 1999), on the World Wide Web, at ``htp://www.ftc.gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W., Washington,
DC 20580, either in person or by calling (202) 326-3627.
Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW,
Washington, DC 20580. Two paper copies of each comment should be filed,
and should be accompanied, if possible, by a 3\1/2\ inch diskette
containing an electronic copy of the comment. Such comments or views
will be considered by the Commission and will be available for
inspection and
[[Page 36357]]
copying at its principal office in accordance with Section
4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii).
Analysis of the Draft Complaint and Proposed Consent Order To Aid
Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment from J Sainsbury plc, owner of Shaw's Supermarkets, Inc.
(``Shaw's'') and Star Markets Holdings, owner of Star Markets Company
(``Star'') (collectively ``the Proposed Respondents'') an Agreement
Containing Consent Order (``the proposed consent order''). The Proposed
Respondents have also reviewed a draft complaint contemplated by the
Commission. The proposed consent order is designed to remedy likely
anitcompetitive effects arising from Shaw's proposed acquisition of all
of the outstanding voting stock of Star.
II. Description of the Parties and the Proposed Acquisition
Shaw's Supermarkets, Inc., a Massachusetts corporation
headquartered in Bridgewater, Massachusetts, is a wholly owned
subsidiary of J Sainsbury plc, a United Kingdom company. Shaw's
operates 126 supermarkets in Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, and Vermont. All of Shaw's supermarkets
operate under the ``Shaw's'' trade name. Shaw's total sales for its
1998 fiscal year were approximately $2.8 billion. Shaw's is the second
largest supermarket chain operating in Greater Boston. After the
merger, Shaw's will become the number one supermarket chain in Greater
Boston, controlling almost 40% of all supermarket sales.
Star is a Massachusetts corporation headquartered in Cambridge,
Massachusetts. Star operates 53 supermarkets in Massachusetts, forty-
nine under the ``Star'' trade name and four under the ``Wild Harvest''
trade name. Star also operates a wholesale food business that serves
mostly small independent supermarket customers throughout New England
and New York State. Star's wholesale customer base includes 11
supermarkets that contractually use the ``Star Markets'' trade name
though Star has no ownership interest in them. Star's revenues for
fiscal year 1998 are more than $1 billion, $966 million of which are
from its retail operations. With its 53 supermarkets, Star is the third
largest supermarket chains operating in Greater Boston.
On November 25, 1998, J Sainsbury plc, Star Markets Holdings, Inc.,
Star Markets Company, Inc. and certain stockholders of Star Markets
Holdings Inc., entered into a Stock Purchase Agreement for J Sainsbury
plc to acquire all of the outstanding voting securities of Star Markets
Holdings, Inc. The value of the transaction is approximately $490
million.
III. The Draft Complaint
The draft complaint alleges that the relevant line of commerce
(i.e., the product market) is the retail sale of food and grocery items
in supermarkets. Supermarkets provide a distinct set of products and
services for consumers who desire to one-stop shop for food and grocery
products. Supermarkets carry a full line and wide selection of both
food and nonfood products (typically more than 10,000 different stock-
keeping units (``SKUs'')), as well as an extensive inventory of those
SKUs in a variety of brand names and sizes. In order to accommodate the
large number of nonfood products necessary for one-stop shopping,
supermarkets are large stores that typically have at least 10,000
square feet of selling space.
Supermarkets compete primarily with other supermarkets that provide
one-stop shopping for food and grocery products. Supermarkets base
their food and grocery prices primarily on the prices of food and
grocery products sold at nearby supermarkets. Most consumers shopping
for food and grocery products at supermarkets are not likely to shop
elsewhere in response to a small price increase by supermarkets.
Retail stores other than supermarkets that sell food and grocery
products, such as neighborhood ``mom & pop'' grocery stores, limited
assortment stores, convenience stores, specialty food stores (e.g.,
seafood markets, bakeries, etc.), club stores, military commissaries,
and mass merchants, do not effectively constrain prices at
supermarkets. The retail format and variety of items sold at these
other stores are significantly different than that of supermarkets.
None of these other retailers offer a sufficient quantity and variety
of products to enable consumers to one-stop shop for food and grocery
products.
The draft complaint alleges that the relevant sections of the
country (i.e., the geographic markets) in which to analyze the
acquisition are the areas in or near the following incorporated cities
or towns in Massachusetts: (a) Waltham area that includes Waltham,
Auburndale, Watertown, Newton, West Newton, Weston, and Lexington; (b)
Quincy-Dorchester area that includes Quincy, N. Quincy, Milton,
Dorchester, Boston, S. Boston, Braintree, and Weymouth; (c) Norwood
area that includes Norwood, Walpole, Westwood, Dedham, Wrentham, and
Sharon; (d) Milford area that includes Milford, Hopedale, Mendon, and
Upton; (e) Salem-Lynn area that includes Salem, Lynn, Peabody,
Swampscott, Danvers, Nahant, and Marblehead; (f) Norwell area that
includes Norwell, Hanover, Rockland, Pembroke, Hanson, Scituate,
Halifax, Hingham, Weymouth, Cohasset, and Hull; (g) Hudson-Stow area
that includes Stow, Hudson, Sudbury, Marlborough, and Bolton; and (h)
Saugus-Melrose-Stoneham area that includes Saugus, Melrose, Stoneham,
and Wakefield.
J Sainsbury through its Shaw's subsidiary and Star Markets are
actual and direct competitors in the all of the relevant markets.
The draft complaint alleges that the post-merger markets would all
be highly concentrated, whether measured by the Herfindahl-Hirschman
Index (commonly referred to as ``HHI'') or four-firm concentration
ratios. The acquisition would substantially increase concentration in
each market. The post-acquisition HHIs in the geographic markets range
from 2205 points to 5136 points.
The draft complaint further alleges that entry is difficult and
would not be timely, likely, or sufficient to prevent anticompetitive
effects in the relevant geographic markets.
The draft complaint also alleges that Shaw's acquisition of all of
the outstanding voting securities of Star, if consummated, may
substantially lessen competition in the relevant line of commerce in
the relevant markets in violation of Section 7 of the Clayton Act, as
amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission
Act, as amended, 15 U.S.C. 45, by eliminating direct competition
between supermarkets owned or controlled by Shaw's and supermarkets
owned and controlled by Star; by increasing the likelihood that Shaw's
will unilaterally exercise market power; and by increasing the
likelihood of, or facilitating, collusion or coordinated interaction
among the remaining supermarket firms. Each of these effects increases
the likelihood that the prices of food, groceries or services will
increase, and the quality and selection of food, groceries or services
will decrease, in the geographic markets alleged in the complaint.
[[Page 36358]]
IV. The Terms of the Agreement Containing Consent Order (``the
Proposed Consent Order'')
The proposed consent order will remedy the Commission's competitive
concerns about the proposed acquisition. Under the terms of the
proposed consent order Shaw's and Star must divest ten supermarkets,
seven stores operating under the ``Star Markets'' trade name and three
under the ``Shaw's'' trade name.
In the eight relevant markets, the Proposed Respondents will divest
either all of the Shaw's or Star supermarkets to buyers who do not
currently operate supermarkets in these markets. Divesting all of one
party's assets in a particular market achieves the goals that the
proposed consent order is designed to achieve--ensuring that the merger
will not increase concentration in any relevant market and maintaining
the number of firms in the market that existed before the merger.
Seven of the supermarkets to be divested are being sold to two
experienced up-front buyers, firms that the Commission has pre-
evaluated for their competitive and financial viability. The
Commission's evaluation process consisted of analyzing the financial
condition of the proposed acquirers and the locations of their current
supermarkets to ensure that divestitures to them would not increase
concentration or decrease competition in the relevant markets, as well
as, determining that these purchasers are well qualified to operate the
divested stores. The remaining three supermarkets are to be divested by
the Proposed Respondents within three months of the date on which they
signed the proposed consent agreement, to an acquirer approved by the
Commission and in a manner approved by the Commission. Public comments
may address the suitability of the designated up-front buyers to
acquire supermarkets under the proposed consent order.
The following is a discussion of the two up-front buyers, Victory
Super Markets (``Victory'') and Foodmaster Super Markets, Inc.
(``Foodmaster''). Victory, headquartered in Massachusetts and founded
by the DiGeronimo family in 1923, will acquire five supermarkets from
Shaw'--Shaw's Supermarket stores No. 193 in Waltham, No. 196 in North
Quincy, and No. 122 in Norwood; and Star Markets Stores No. 169 in
Milford, and No. 128 in Norwell, MA. Foodmaster, headquartered in
Chelsea, Massachusetts, will acquire two supermarkets from Shaw's--Star
Markets No.144 in Lynn and No. 129 in Swampscott.
The proposed consent order further requires Shaw's and Star to
divest three additional supermarkets, Star Markets No. 152 in Stow,
Star Markets No. 118 in Sudbury, and Star Markets No. 173 in Saugus to
a proposed buyer that will be selected by Shaw's and approved by the
Commission within three months of the date on which the Proposed
Respondents sign the proposed consent agreement.
Paragraph II.A. of the proposed consent order requires that the
divestiture to Victory must occur no later than the earlier of (1)20
days from when the merger is consummated, or (2) four months after the
Commission accepts the agreement for public comment.\1\ Paragraph II.B.
of the proposed consent agreement requires that Shaw's divest the two
supermarkets to Foodmaster within ten days of the date on which the
proposed consent order becomes final. If Shaw's consummates the
divestitures to Victory and Foodmaster during the public comment
period, and if, at the time the Commission decides to make the order
final, the Commission notifies Shaw's that Victory or Foodmaster is not
an acceptable acquirer or that the asset purchase agreement with
Victory or Foodmaster is not an acceptable manner of divestiture, then
Shaw's must immediately rescind the transaction in question and divest
those assets to another buyer within three months of the date the order
becomes final. At that time, Shaw's must divest those assets only to an
acquirer that receives the prior approval of the Commission and only in
a matter that receives the prior approval of the Commission. In the
event that any Commission-approved buyer is unable to take or keep
possession of any of the supermarkets identified for divestiture, a
trustee that the Commission may appoint has the power to divest any
assets that have not been divested to satisfy the requirements of the
proposed consent order.
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\1\ Acceptance of the proposed consent agreement for public
comment terminates the HSR waiting period and enables Shaw's to
immediately acquire all of the outstanding voting securities of Star
Markets.
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The proposed consent order also enables the Commission to appoint a
trustee to divest any supermarkets or sites identified in the order
that Shaw's and Star have not divested to satisfy the requirements of
the proposed consent order. In addition, the proposed order enables the
Commission to seek civil penalties against Shaw's for non-compliance
with the proposed consent order.
Among other requirements related to maintaining operations at the
supermarkets identified for divestiture, the proposed consent order
also specifically requires the Proposed Respondents to: (1) Maintain
the viability, competitiveness and marketability of the assets to be
divested; (2) not cause the wasting or deterioration of the assets to
be divested; (3) not sell, transfer, encumber, or otherwise impair
their marketability or viability; (4) maintain the supermarkets
consistent with past practices; (5) use best efforts to preserve
existing relationships with suppliers, customers, and employees; and
(6) keep the supermarkets open for business and maintain the inventory
at levels consistent with past practices.
The proposed consent order also prohibits Shaw's from acquiring,
without providing the Commission with prior notice, any supermarkets,
or any interest in any supermarkets, located in the county or counties
that include the incorporated cities and towns in Massachusetts:
Waltham, Auburndale, Watertown, Newton, West Newton, Weston, Lexington,
Quincy, N. Quincy, Milton, Dorchester, Boston, S. Boston, Braintree,
Hopedale, Mendon, Upton, Salem, Lynn, Peabody, Swampscott, Danvers,
Nahant, Marblehead, Norwell, Hanover, Rockland, Pembroke, Hanson,
Scituate, Halifax, Hingham, Cohasset, Hull, Stow, Hudson, Sudbury,
Marlborough, Bolton, Saugus, Melrose, Wakefield, and Stoneham for ten
years. These are the areas for which the supermarkets to be divested
draw customers. The provisions regarding prior notice are consistent
with the terms used in prior Orders. The proposed consent order does
not, however, restrict the Proposed Respondents from constructing new
supermarkets in the above listed areas; nor does it restrict the
Proposed Respondents from leasing facilities not operated as
supermarkets within the previous six months.
The proposed consent also prohibits Shaw's, for a period of ten
years, from entering into or enforcing any agreement that restricts the
ability of any person acquiring any location used as a supermarket, or
interest in any location used as a supermarket on or after January 1,
1998, to operate a supermarket at that site if that site was a formerly
owned or operated by Shaw's or Star Markets in any of the areas listed
in the paragraph above. In addition, the Proposed Respondents are
prohibited from removing fixtures or equipment from a store or property
owned or leased
[[Page 36359]]
by Shaw's in any of the cities or town listed above that is no longer
operated as a supermarket, except (1) prior to a sale, sublease,
assignment, or change in occupancy or (2) to relocate such fixtures or
equipment in the ordinary course of business to any other supermarket
owned or operated by the Proposed Respondents.
The Proposed Respondents are required to file compliance reports
with the Commission, the first of which is due within thirty days of
the date on which Proposed Respondents signed the proposed consent, and
every thirty days thereafter until the divestitures are completed, and
annually for ten years.
The proposed consent order also has a provision relating to the
settlement agreement negotiated by the State of Massachusetts. If the
State of Massachusetts fails to approve any divestiture that has not
been completed, even though the parties are in compliance with the
other provisions of the proposed consent agreement, the time period in
which the divestiture must be completed will be extended 60 days during
which the parties must exercise utmost good faith and best efforts to
resolve the concerns of that particular state.
V. Opportunity for Public Comment
The proposed consent order has been placed on the public record for
60 days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After 60 days, the Commission will again review the proposed consent
order and the comments received and will decide whether it should
withdraw from the agreement or make the proposed consent order final.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the proposed consent order, including the proposed
sale of supermarkets to Victory and Foodmaster, in order to aid the
Commission in its determination of whether to make the proposed consent
order final. This analysis is not intended to constitute an official
interpretation of the proposed consent order nor is it intended to
modify the terms of the propsed consent order in any way.
By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 99-16993 Filed 7-2-99;8:45 am]
BILLING CODE 6750-01-M
