Yates Wine Lodges Ltd / SFI Group Ltd - GOV.UK

Yates Wine Lodges Ltd / SFI Group Ltd OFT closed case: Completed acquisition by Yates Wine Lodges Limited of assets of the SFI Group Limited.

Published 10 October 2005 Case type: Mergers Case state: Closed Market sector: Recreation and leisure Outcome: Mergers - phase 1 clearance Closed: 10 October 2005 Contents PARTIES

TRANSACTION JURISDICTION RELEVANT MARKET Product scope Geographic scope HORIZONTAL ISSUES BARRIERS TO ENTRY AND EXPANSION BUYER POWER VERTICAL ISSUES THIRD PARTY VIEWS ASSESSMENT DECISION

NOTES

Affected market: Pubs

No. ME/1926-05

The OFT's decision on reference under section 22(1) given on 11October 2005. Full text of decision published 20 October 2005.

Yates' Wine Lodges Limited (Yates) is owned by the Laurel PubCompany Limited (Laurel), which before the transaction owned andoperated 314 city centre pubs and bars in the UK, as well as

eightrestaurants. Laurel is majority-owned by the Tchenguiz Family Trust(TFT). The TFT also owns the Globe Pub Company Limited (Globe). Globecurrently owns 508 pubs, which are managed under

an agreement byScottish and Newcastle Pub Enterprises.

The SFI Group Limited (SFI) owned 150 pubs prior to the transactionand it was put into administration immediately prior to the sale. Theturnover generated in the UK by the assets acquired by

Yates in 2004 was£95.5 million.

The transaction comprises the acquisition by Yates of 101 pubs from SFIbranded as 'Slug & Lettuce', 'Litten Tree', 'Bar Med','Fiesta Havana' and 'Label' (the latter being a chain of pubs

andbars) and certain of SFI's subsidiaries. SFI and its administratorshave retained 49 pubs and bars from the original estate.

The acquisition was completed on 23 June 2005, and a satisfactorysubmission was received on 11 August 2005 following an enquiry lettersent by the Office of Fair Trading. Due to failure by

the parties toprovide information under the timeframe provided, the statutory deadlinewas extended to 27 October 2005 and the administrative deadline to 12October 2005.

The acquisition will result in two enterprises ceasing to be distinctwithin the meaning of section 26(1) of the Enterprise Act 2002. Theturnover test is met since the turnover generated in

2004 by theacquired assets was greater than £70 million. The OFT therefore believesthat it is or may be the case that a relevant merger situation has beencreated.

scope

The parties overlap in the ownership and operation of pubs and bars. Inprevious cases the OFT has considered the appropriate frame of referenceto be the ownership and/or operation of pubs,

where 'pubs' are definedas being 'premises operated under a full publican on-licence' (see[note 1]).  This definition encompasses bars and inns, butexcludes restaurants and registered

restaurants which operate underrestricted licenses.

In previous cases the OFT has pointed out that the distinction betweenpubs and other on-licensed outlets has blurred over recent years,causing pubs to potentially compete with other

on-licensed premises(even though there are some limitations in demand and supply sidesubstitution); however, it has been accepted that sales fromoff-licensed outlets do not constrain pubs.

It has also been noted thatit could be appropriate to further segment pubs according to location,customer profile, range of products sold and 'pub experience'. Laurelsubmitted that although

it believes that all types of pubs and barscompete, the degree of competition between them may vary according tothe type of customers they target. In addition, Laurel believes

thatrestaurants and other licensed premises compete with each other tovarying extents, and it submitted that its restaurants set prices withregard to nearby on-licensed premises (to the

extent that they compete).

In view of the changes in the market and in the licensing laws (see[note 2]),  the OFT has considered alternative product marketdefinitions. It has consulted the parties and third parties on

theextent of competition from different types of premises within the pubsegment, competition from other types of establishments, competitionwith the off-trade and other aspects of the

nature of competition in thepub market. However, the OFT currently has insufficient evidence tojustify taking a different view from that in previous cases, i.e., thatpubs is the appropriate

frame of reference. Nonetheless, it is worthnoting that the OFT believes that the merger does not raise competitionconcerns on any of the alternative approaches.

Where national chains exist, in previous cases it was acknowledged thatalthough on the supply side certain parameters of competition areincreasingly determined at the national level, some

parameters ofcompetition are still determined locally to an extent. On the demandside, many pubs exhibit strong local characteristics.

In previous cases involving pubs it was pointed out that the use ofPetty Sessional Divisions (PSDs) as a proxy for analysing thealternatives for local consumers and the extent of local

competitionamong pubs has some inherent weaknesses, and that as a consequence ofthe new licensing regime the PSD will no longer be the relevantlicensing area. In this and in previous

investigations, the parties tothe merger and third parties have been questioned on the mostappropriate method for examining local competition following the removalof the PSDs. In previous

cases a number of respondents have indicatedthat the most appropriate alternative would be to use local authorityareas (LAAs) as a proxy. Although it was acknowledged that this wouldhave

similar flaws as the PSD methodology, information on the number ofpubs would at least be relatively reliable.

Laurel's response to our queries indicate that there is a degree oflocal competition in this sector as Globe's beer prices to its tenantsvary by geographic location and Laurel changes its

retail pricesaccording to pub location. Although it does not have any studiesregarding the distance that people are willing to travel to visit a pubor bar, it suggested that in its

experience pubs have a catchment areaof, typically, 5-6 miles.

The OFT's analysis focused on assessing the combined share of supplyaccording to the number of pubs at a national level and within a PSD, asin previous cases, as well as within a LAA.

Furthermore, the overlapswith Laurel's restaurants and the levels of concentration in highstreet locations were also taken into account. In view of the fact thatthe case under consideration

does not raise any concerns under any ofthese methodologies, it is not necessary to conclude on the mostappropriate geographic frame of reference.

The parties overlap in 65 PSDs. However, based on the parties'estimation of their share of supply, there is not a single PSD or LAAarea in which the combined share of supply is greater than

25 per centof the total number of pubs. Indeed, analysis commissioned by theparties from AC Nielson show that the highest combined share of supplywithin a PSD is less than 10 per cent. In

addition, on a national levelthe parties have less than 2 per cent of the pub market.

Laurel's restaurants only overlap with the pubs and bars acquired fromSFI in the Nottingham and Reading PSDs, and the combined share of supplyconsidering all licences within any given PSD or

LAA is even lower thanthe combined share of pubs.

Finally, in response to a third party comment that the merged group wassaturating the high street with its various brands of pubs and bars,Laurel presented data prepared by AC Nielsen

indicating that it does notown more than 15 per cent of pubs in any town centre across the country(and in most areas its share of supply is well below that).

On the basis of the low combined national and local shares of supply, atboth a PSD and LAA level, as well as in town centre locations, the OFTbelieves that no horizontal concerns will arise

as a consequence of thismerger.

In view of the lack of horizontal concerns, it is not necessary toconclude on barriers to entry and expansion.

In view of the lack of horizontal concerns, it is not necessary toconclude on the existence of countervailing buyer power. In addition,the low shares of supply that the parties have

following the transactionindicate that this merger does not raise any concerns regarding enhancedbuyer power in relation to brewers.

There are no vertical issues arising in this transaction in view of thefact that the parties are not active in the distribution or supply ofbeverages.

Third parties were generally unconcerned about this transaction; onlyone third party raised concerns regarding the potential saturation ofthe high street by the merged party, which has been

addressed above.

Yates and SFI overlap in the operation and ownership of pubs. Thismerger does not give rise to competition concerns due to the lowcombined share of supply at national, PSD and LAA levels

coupled withthe virtual absence of third party complaints.

Consequently, the OFT does not believe that it is or may be the casethat the merger has resulted or may be expected to result in asubstantial lessening of competition within a market or

markets in theUnited Kingdom.

This merger will therefore not be referred to the Competition Commissionunder section 22(1) of the Act.

NOTES Greene King Plc/Laurel Pub Holdings Ltd 2004. The current licensing regime involves different types of licenceswith different degrees of restriction placed upon them (e.g.

fullon-licences, restricted on-licences and club on-licences). This is beingreplaced with a system in which there is only one type of licence forall types of premises.  Furthermore,

responsibility for premiseslicensing will be transferred from local magistrates to localauthorities. The new system will come into into full effect in November2005. Updates to this page

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