[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