[Federal Register Volume 65, Number 148 (Tuesday, August 1, 2000)]
[Notices]
[Pages 46932-46935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19350]


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FEDERAL TRADE COMMISSION

[File No. 991 0308]


Establissements Delhaize Freres et Cie ``Le Lion'' S.A., 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 August 24, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker, FTC/H-374, 600 
Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2574.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 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 thirty (30) 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 July 25, 2000), on the World Wide Web, at ``http://www.ftc.gov/
ftc/formal.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 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 Ave., 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 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 Complaint and Proposed Consent Order to Aid Public 
Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from Establissments Delhaize Freres et Cie ``Le Lion'' 
S.A. (``Delhaize''), Delhaize America, Inc. (``Delhaize America''), and 
Hannaford Bros. Co. (``Hannaford'') (collectively ``the Proposed 
Respondents''), an Agreement Containing Consent Order (``the proposed 
consent order''). The Proposed Respondents have also reviewed a draft 
complaint that the Commission contemplates issuing. The proposed 
consent order is designed to remedy likely anticompetitive effects 
arising from the proposed Agreement and Plan of Merger between 
Delhaize, Delhaize America, and Hannaford to acquire all of the 
outstanding voting stock of Hannaford.

II. Description of the Parties and the Proposed Acquisition

    Delhaize America, a North Carolina corporation, which operates most 
of its stores under the names of ``Food Lion'' and ``Kash N' Karry,'' 
has over 1,200 supermarkets in the Southeast and Mid-Atlantic regions 
of the United States. Food Lion stores are situated in Virginia, North 
Carolina, South Carolina, Georgia, Florida, Tennessee, Kentucky, West 
Virginia, Pennsylvania, Delaware, and Maryland. Delhaize America's 
total sales for fiscal year 1999 were $11 billion, with most generated 
by Food Lion stores' operations.
    Hannaford, a publicly traded firm, is a Maine corporation with 
executive offices located in Scarborough, Maine. Approximately one-
fourth of its common stock is owned by the Sobey family of Stellarton, 
Nova Scotia, Canada, and its various affiliated trusts and companies. 
Hannaford's total sales for fiscal year 1999 were $3.46 billion. 
Hannaford operates about 100 stores under the ``Hannaford'' or ``Shop 
`N Save'' banner in metropolitan New England and New York markets, plus 
about 50 stores under the ``Hannford'' banner in Virginia and North 
Carolina markets. Hannaford entered the Southeast in the mid-1900's. 
The company's supermarkets are located in Maine, Massachusetts, New 
Hampshire, Vermont, New York, North Carolina, Virginia, and South 
Carolina.
    Under the terms of the merger agreement, dated August 17, 1999, 
Delhaize America will acquire all of Hannaford's outstanding voting 
stock for approximately $3.6 billion.

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 a deep inventory of those SKUs in 
a variety of brand names and sizes. In order to accommodate the large 
number of food and nonfood products necessary for one-stop shopping, 
supermarkets are large stores that typically have at least 10,000 
square feet of selling space. Supermarkets in North Carolina and 
Virginia, where the parties propose to divest supermarkets, tend to be 
at least 20,000 square feet, selling some 25,000-35,000 SKUs. So called 
``supercenters'' operated by mass merchants such as WalMart, which have 
full-line supermarkets attached to general merchandise stores, are 
included in the product market.
    Supermarkets compete primarily with other supermarkets that provide 
one-stop shopping for food and grocery products. Supermarkets base 
their food and grocery prices on the prices primarily of food and 
grocery products sold at nearby supermarkets. Supermarkets do not 
regularly price-check food and grocery products sold at other types of 
stores such as club stores or limited assortment stores, and do not 
significantly change their food and grocery prices in response to 
prices at other types of stores. 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

[[Page 46933]]

not effectively constrain most prices at supermarkets. These other 
stores operate significantly different retail formats and sell far more 
limited assortments of items or in the case of military commissaries 
are only open to a limited population base. None of these formats would 
constrain a price increase taken by supermarkets in the geographic 
markets.
    The draft complaint alleges that the relevant sections of the 
country (i.e., the geographic markets) in which to analyze the 
acquisition are the county or counties that include the following 
incorporated cities and towns. In Virginia the relevant geographic 
markets are: (a) a market consisting of the Richmond MSA; and (b) two 
markets that are part of the Norfolk-Virginia Beach-Newport News MSA 
(also known as the Tidewater area)--the Tidewater Peninsula (Newport 
News, Hampton and other portions of the peninsula north of the James 
River), and Southern Tidewater (including Norfolk, Virginia Beach, 
Portsmouth, and other parts of the MSA south of the James River). In 
North Carolina the relevant geographic markets are: (a) the Wilmington 
MSA; (b) Columbus County; (c) Duplin County; (d) Pender County; and (e) 
``greater Raleigh,'' which includes Wake County, excluding the towns of 
Wake Forest, Rolesville, Zebulon, and Wendell.
    Food Lion and Hannaford are actual and direct competitors in all of 
the above listed markets. The acquisition will eliminate that 
competition. The draft complaint alleges that each of the post merger 
markets would be highly concentrated, whether measured by the 
Herfindahl-Hirschman Index (commonly referred to as ``HHI'') or by two-
firm and four-firm concentration ratios.\1\ The acquisition would 
substantially increase concentration in each market. Delhaize America 
and Hannaford would have a combined market share that ranges from 35 
percent to 94 percent in each geographic market. The post-acquisition 
HHIs in the geographic markets range from 2562 points to 8817 points.
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    \1\ The HHI is a measurement of market concentration calculated 
by summing the squares of the individual market shares of all the 
participants.
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    Concentration levels in the geographic markets alleged in the draft 
complaint would not be materially different even if club stores and 
limited assortment stores were included in the product market. 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 alleges that Delhaize America's proposed 
acquisition of all of the outstanding voting stock of Hannaford, if 
consummated, may substantially lessen competition 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 Delhaize and supermarkets owned or 
controlled by Hannaford; by increasing the likelihood that Delhaize 
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 raises 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 proposed 
complaint.

IV. 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.\2\ Under the terms of the 
proposed consent order, the Proposed Respondents must divest 37 
identified Hannaford supermarkets and one identified Hannaford 
supermarket site in the relevant markets to three different up-front 
buyers. These buyers were selected by the parties and presented to the 
Commission for its review.
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    \2\ Acceptance of the proposed consent order for public comment 
terminates the Hart-Scott-Rodino waiting period and enables Delhaize 
America to immediately acquire the Hannaford voting stock.
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    The Commission's goal is evaluating possible purchasers of divested 
assets is to maintain the competitive environment that existed prior to 
the acquisition. When divestiture is an appropriate remedy for a 
supermarket merger, the Commission requires the merging parties to find 
a buyer for the divested stores. A proposed buyer must not itself 
present competitive problems. For example, the Commission is less 
likely to approve a buyer that already has a large retail presence in 
the relevant geographic area than a buyer without such a presence. The 
Commission is preliminarily satisfied that the purchasers presented by 
the parties are well qualified to run the divested stores and that 
divestiture to these purchasers poses no separate competitive issues. 
Public comments may address the suitability of the designated acquirers 
to acquire the supermarkets at issue.
    The three up-front buyers and the number of stores each is 
acquiring are as follows: Kroger Co. (20 stores in Virginia), Lowe's 
Food Stores, Inc. (12 stores and one site in North Carolina), and the 
Sylvester Group (five stores in North Carolina). Kroger, headquartered 
in Ohio, operates 2,300 supermarkets in 31 states. Kroger is buying the 
stores in the Richmond and Tidewater areas where it does not currently 
operate supermarkets. Lowe's, a North Carolina corporation, operates 86 
supermarkets throughout North Carolina and Virginia. Lowe's is buying 
supermarkets in Wilmington and Raleigh. Lowe's has a small presence in 
Raleigh, operating two supermarkets in that market, but operates no 
supermarkets in Wilmington. The Sylvester Group, a family-owned firm, 
operates 26 ``Piggly Wiggly'' supermarkets in rural North Carolina and 
will acquire five stores. The Sylvester Group operates one store in 
Duplin County, but the Hannaford it is acquiring is 20 miles from that 
store. A list of the specific supermarkets that Delhaize America and 
Hannaford must divest to each of the up-front buyers is attached at the 
end of this Analysis of the Draft Complaint and Proposed Consent Order 
to Aid Public Comment.
    The proposed consent order requires that, no later than 10 days 
after the date on which the consent order becomes final, the Proposed 
Respondents shall divest these assets pursuant to and in accordance 
with their agreements with the buyers. The amount of time required for 
the divestitures varies with each of the buyers, based on the buyer's 
need to convert large numbers of new stores into its operations.
    The proposed consent order also requires the Proposed Respondents 
to include rescission provisions in its up-front buyer agreements that 
allow it to rescind the transaction(s) if the Commission, after the 
comment period, decides to reject any of the up-front buyers. If, at 
the time the Commission decides to make the proposed consent order 
final, the Commission notifies the Proposed Respondents that any of the 
up-front buyers to which they have divested a supermarket or site is 
not an acceptable acquirer, or that any up-front buyer agreement is not 
an acceptable manner of divestiture, then the Proposed Respondents must 
immediately rescind the transaction in question and divest those assets 
within three months after the proposed consent order becomes final. At 
that time, the Proposed Respondents must divest those assets only to an 
acquirer that receives the prior approval of the

[[Page 46934]]

Commission and only in a manner 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 additional ancillary assets and effect such arrangements as 
are necessary to satisfy the requirements of the proposed consent 
order.
    The proposed consent order 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 of products in each store consistent with past 
practice. The proposed consent order also contains more specific 
details relating to maintaining store operations.
    The proposed consent order also enables the Commission to appoint a 
trustee to divest any supermarkets or site identified in the order that 
Delhaize America and Hannaford have not divested to satisfy the 
requirements of the proposed consent order. The proposed consent order 
also enables the Commission to seek civil penalties against Delhaize or 
Delhaize America for non-compliance with the proposed consent order.
    For a period of 10 years from the date the proposed consent order 
becomes final, the Proposed Respondents are required to provide written 
notice to the Commission prior to acquiring supermarket assets located 
in, or any interest (such as stock) in any entity that owns or operates 
a supermarket located in the county or counties that include the 
relevant geographic areas. Proposed Respondents may not complete such 
an acquisition until they have provided information requested by the 
Commission. This provision does not restrict the Proposed Respondents 
from constructing new supermarket facilities on their own; nor does it 
restrict the Proposed Respondents from leasing facilities not operated 
as supermarkets within the previous six months.
    For a period of 10 years, the proposed consent order also prohibits 
the Proposed Respondents from entering into or enforcing any agreement 
that restricts the ability of any person that acquires any supermarket, 
any leasehold interest in any supermarket, or any interest in any 
retail location used as a supermarket on or after January 1, 1998, to 
operate a supermarket at that site if such supermarket was formerly 
owned or operated by the Proposed Respondents in the county or counties 
that include the relevant geographic areas. In addition, the Proposed 
Respondents may not remove fixtures or equipment from a store or 
property owned or leased in these counties that is no longer in 
operation 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 Proposed Respondents.
    The Proposed Respondents are required to provide to the Commission 
a report of compliance with the proposed consent order within 30 days 
following the date on which they signed the proposed consent, every 30 
days thereafter until the divestitures are completed, and annually for 
a period of 10 years.

V. Opportunity for Public Comment

    The proposed consent order has been placed on the public record for 
30 days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After 30 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 the various independent buyers listed below, 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 proposed consent order in any 
way.

Attachment--To Analysis of the Complaint and Proposed Consent Order to 
Aid Public Comment

Supermarkets Divested to Kroger

Hannaford Store No. 427, located at 9480 W. Broad St., Richmond, VA
Hannaford Store No. 474, located at 2738 Hannaford Plaza, Richmond, 
VA
Hannaford Store No. 477, located at 4816 S. Laburnum, Richmond, VA
Hannaford Store No. 478, located at 1356 Gaskins Rd., Richmond, VA
Hannaford Store No. 479, located at 3507 W. Cary St., Richmond, VA
Hannaford Store No. 480, located at 11400 Huguenot Rd., Midlothian, 
VA
Hannaford Store No. 481, located at 10921 Hull St., Midlothian, VA
Hannaford Store No. 484, located at 7951 Brook Rd., Richmond, VA
Hannaford Store No. 486, located at 12201 So. Chalkley, Chester, VA
Hannaford Store No. 490, located at 1601 Willow Lawn Dr., Richmond, 
VA
Hannaford Store No. 430, located at 14246 Warwick Blvd., Newport 
News, VA
Hannaford Store No. 432, located at 4692 Columbus St., Virginia 
Beach, VA
Hannaford Store No. 483, located at 4625 Shore Dr., Virginia Beach, 
VA
Hannaford Store No. 487, located at 1800 Republic Dr., Virginia 
Beach, VA
Hannaford Store No. 488, located at 101 Village Ave., York Co., VA
Hannaford Store No. 491, located at 2029 Lynnhaven Pkwy., Virginia 
Beach, VA
Hannaford Store No. 492, located at 205 East Little Creek Rd., 
Norfolk, VA
Hannaford Store No. 493, located at 5237 Providence Rd., Virginia 
Beach, VA
Hannaford Store No. 494, located at 5601 High St., Portsmouth, VA
Hannaford Store No. 496, located at King Richard Dr., Virginia 
Beach, VA

Supermarkets and Unbuilt Site Divested to Lowe's

Hannaford Store No. 410, located at 341 South College Rd., 
Wilmington, NC
Hannaford Store No. 415, located at 2316 North College Rd., 
Wilmington, NC
Hannaford Store No. 424, located at 930 High House Rd., Cary, NC
Hannaford Store No. 425, located at 9600 Strickland Rd., Raleigh, NC
Hannaford Store No. 426, located at 5309 Carolina Beach Rd., 
Wilmington, NC
Hannaford Store No. 428, located at 2900 Millbrook Rd., Raleigh, NC
Hannaford Store No. 436, located at 2900 Wake Forest Rd., Raleigh, 
NC
Hannaford Store No. 439, located at 1741 Walnut St., Cary, NC
Hannaford Store No. 441, located at 5051-3 Main St., Shallotte, NC
Hannaford Store No. 442, located at 4821 Long Beach Rd., S.E., 
Southport, NC
Hannaford Store No. 444, located at 3804 Oleander Dr., Wilmington, 
NC
Hannaford Store No. 455, located at 1405 W. Williams St., Suite A, 
Apex, NC Unbuilt Site, located at Ten Ten Road, Cary, NC

Supermarkets Divested to Ward Sylvester

Hannaford Store No. 402, located at 103 South Dudley Street, Burgaw, 
NC
Hannaford Store No. 408, located at 112A Village Road, Leland, NC
Hannaford Store No. 403, located at 107 South Pine Street, Warsaw, 
NC
Hannaford Store No. 420, located at 701B White's Crossing Shopping 
Center, Whiteville, NC
Hannaford Store No. 414, located at 604

[[Page 46935]]

Jefferson Street, Whiteville, NC


    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-19350 Filed 7-31-00; 8:45 am]
BILLING CODE 6750-01-M