[Federal Register Volume 67, Number 229 (Wednesday, November 27, 2002)]
[Notices]
[Pages 70952-70955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30084]


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FEDERAL TRADE COMMISSION

[File No. 021 0090]


Wal-Mart Stores, Inc. and Supermercados Amigo, Inc.; 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 December 20, 2002.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed below.

FOR FURTHER INFORMATION CONTACT: Barbara Anthony or Michael Bloom, FTC 
Northeast Regional Office, One Bowling Green, Suite 318, New York, NY 
10004. (212) 607-2828 or (212) 607-2801.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade

[[Page 70953]]

Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), 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 November 21, 2002), on the World Wide Web, at http://www.ftc.gov/os/2002/11/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
part of or as an attachment to e-mail messages directed to the 
following e-mail box: [email protected]. Such comments 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 Decision and Order To Aid Public 
Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from Wal-Mart Stores, Inc. (``Wal-Mart'') and 
Supermercados Amigo, Inc. (``Amigo'') (collectively, ``the Proposed 
Respondents'') an Agreement Containing Consent Orders (``the proposed 
consent order''). The Proposed Respondents have also reviewed the 
complaint issued by the Commission. The proposed consent order is 
designed to remedy likely anticompetitive effects arising from Wal-
Mart's proposed acquisition of all of the outstanding voting stock of 
Amigo.

II. Description of the Parties and the Proposed Acquisition

    Wal-Mart is a global food and general merchandise retailer 
headquartered in Arkansas. The company operates or services 
approximately 4,200 stores in the United States, Europe, Latin America, 
and Asia and had sales of over $191 billion in 2001. In the 
Commonwealth of Puerto Rico, Wal-Mart, through its subsidiary Wal-Mart 
Puerto Rico, Inc., operates nine traditional Wal-Mart Stores, one Wal-
Mart Supercenter, and eight SAM's Clubs.
    Amigo, headquartered in San Juan, Puerto Rico, is the largest 
supermarket chain in Puerto Rico in terms of dollar sales. With annual 
sales in 2001 of approximately $542 million, Amigo operates 36 
supermarkets under the Amigo trade name in Puerto Rico.
    On February 5, 2002, Wal-Mart and Amigo signed an agreement whereby 
Wal-Mart will purchase all of the outstanding voting securities of 
Amigo through the merger of W-M Puerto Rico Acquisition Corp., an 
indirect wholly owned subsidiary of Wal-Mart, with and into Amigo. 
Amigo will continue as the surviving corporation. As a result of the 
merger, Wal-Mart will hold 100% of the voting securities of Amigo.

III. The Complaint

    The complaint alleges that the relevant line of commerce (i.e., the 
product market) in which to analyze the acquisition is the retail sale 
of food and grocery products in stores that carry a wide selection and 
deep inventory of food and grocery products in a variety of brands and 
sizes, enabling consumers to purchase substantially all of their weekly 
food and grocery shopping requirements in a single shopping visit. 
Thus, stores in the relevant line of commerce have substantial 
offerings in each of the following product categories: bread and dairy 
products; refrigerated and frozen food and beverage products; fresh and 
prepared meats and poultry; produce, including fresh fruits and 
vegetables; shelf-stable food and beverage products, including canned 
and other types of packaged products; staple foodstuffs, which may 
include salt, sugar, flour, sauces, spices, coffee, and tea; and other 
grocery products, including nonfood items such as soaps, detergents, 
paper goods, other household products, and health and beauty aids.
    Unlike prior supermarket investigations by the Commission, this 
investigation involves geographic markets in Puerto Rico. The evidence 
obtained in our investigation indicated that the markets at issue here 
have characteristics that support a broader relevant product market 
than those identified in past supermarket investigations by the 
Commission. There are approximately 250 supermarkets across Puerto 
Rico, with the majority located in the San Juan metropolitan area. 
There are numerous small and mid-sized supermarket chains throughout 
the island, and in general, competition appears robust. In Puerto Rico, 
full-service supermarkets, ``supercenters'' (which are co-located full-
service supermarkets and mass merchandise outlets), and ``club stores'' 
(which are stores that offer a wide selection and deep inventory of 
food and grocery products and general merchandise-often in large-sized 
packages or in packages of two or more conventional-sized items--to 
businesses and individuals that have purchased club memberships) offer 
a distinct set of products and services that enables them to compete in 
the relevant line of commerce described above. Information provided by 
several club store and supermarket operators in Puerto Rico indicates 
that many Puerto Rico consumers regard club stores as apt substitutes 
for supermarkets. A substantial portion of retail purchasers in Puerto 
Rico regard full-service supermarkets, supercenters, and club stores as 
reasonably interchangeable for the purpose of purchasing substantially 
all of their weekly food and grocery shopping requirements in a single 
shopping visit.
    In Puerto Rico, full-service supermarkets, supercenters, and club 
stores compete primarily with each other. Supermarkets in Puerto Rico 
compete with club stores in a variety of ways. Operators of Puerto Rico 
full-service supermarkets, supercenters, and club stores often price-
check and modify the prices of their food and grocery products based on 
the prices of food and grocery products at nearby full-service 
supermarkets, supercenters, and club stores. They do not often price-
check and modify the prices of food and grocery products based on the 
prices at other types of stores, such as limited assortment stores, 
convenience stores, specialty food stores (e.g., seafood markets, 
bakeries, etc.), military commissaries, and mass merchandise outlets 
(including those with pantries not offering a wide selection and deep 
inventory of food and grocery products). In Puerto Rico, most consumers 
shopping for food and grocery products at full-service supermarkets,

[[Page 70954]]

supercenters, and club stores are not likely to shop at other types of 
stores in response to a small price increase by full-service 
supermarkets, supercenters, and club stores.
    Many supermarket operators lose substantial sales when club stores 
open near to their own stores, and some engage in aggressive promotions 
in the weeks before and following the opening of a club store to blunt 
that sales loss. Some have remodeled stores in advance of their plans 
so as to ward off defections to club stores. Some have reacted to 
competition from club stores by adding additional multi-packs to their 
product offering and enhancing customer service. At the same time, club 
stores in Puerto Rico have introduced increased numbers of conventional 
package configurations. Ordinary-course-of-business documents of 
supermarket operators often refer to club stores as substantial 
competitors.
    Studies also provide support for the inclusion of club stores in 
the relevant product market. For example, a 2001 study, based on 
``extensive in-home interviews among female heads of household * * * 
throughout the island,'' found that 37% of the subjects spontaneously 
mentioned SAM's Club when asked to identify a supermarket or food 
retailer that operates in Puerto Rico. The ``brand awareness'' of the 
four leading supermarket operators (and especially Amigo (with 72%) and 
Pueblo (with 58%)), was substantially greater than that of SAM's Club 
(with 37%), but the smaller Puerto Rico supermarket chains such as 
Ralph's (with 6%), Supermercado Del Este (5%), and Plaza Gigante (5%) 
had significantly less brand awareness among Puerto Rico consumers. 
That same study found that 5% of interviewees reported that SAM's Club 
was their ``regular store'' for their ``large grocery shopping of the 
month.'' That is comparable to or greater than the numbers reported for 
Mr. Special (6%), Supermercado Del Este (3%), and Ralph's (4%). These 
findings are consistent with those of a recurring consumer survey 
conducted by the Puerto Rico food retailing trade association. The 2001 
study found that 13% of consumers identified club stores as the place 
where they make their main food purchases.
    In Puerto Rico, retail stores other than full-service supermarkets, 
supercenters, and club stores, such as limited assortment stores, 
convenience stores, specialty food stores (e.g., seafood markets, 
bakeries, etc.), military commissaries, and mass merchandise outlets 
(including those with pantries not offering a wide selection and deep 
inventory of food and grocery products), do not effectively constrain 
prices in the relevant line of commerce as described above. In Puerto 
Rico, none of these stores offers a full-service supermarket's, 
supercenter's, or club store's distinct set of products and services 
that enables a retail customer to engage in one-stop shopping for food 
and grocery products.
    Ample testimonial and documentary evidence indicates that a 
significant portion of Puerto Rico consumers use full-service 
supermarkets and club stores interchangeably. Accordingly, the relevant 
product market within which to assess the effects in Puerto Rico of the 
proposed transaction is a market consisting of full-service 
supermarkets, supercenters, and retail sales of supermarket-type items 
at club stores, or in general, stores that carry and offer at retail a 
wide selection and deep inventory of food and grocery products in a 
variety of brands and sizes, enabling consumers to purchase 
substantially all of their weekly food and grocery shopping 
requirements in a single shopping visit. The determination that club 
stores are included in the relevant product market in this proceeding 
does not, of course, determine what the relevant product market will be 
in future supermarket investigations by the Commission.
    The complaint alleges that the relevant sections of the United 
States (i.e., the geographic markets) in which there are competitive 
problems related to the acquisition are the areas of Puerto Rico in and 
near Cayey and Cidra (the ``Cayey'' market), Ponce and Juana Diaz (the 
``Ponce'' market), and Barceloneta, Manati, and Vega Baja (the 
``Manati'' market). The Cayey, Ponce, and Manati markets are highly 
concentrated, whether measured by the Herfindahl-Hirschman Index 
(commonly referred to as the ``HHI'') or by two-firm and four-firm 
concentration ratios.\1\ The post-acquisition HHI in the Cayey market 
would increase 1,056 points, from 2,500 to 3,556; in the Ponce market 
it would increase 603 points, from 1,912 to 2,515; and in the Manati 
market, taking into account a Wal-Mart supercenter that will open 
shortly, it would increase 1,782 points, from 2,173 to 3,955. In the 
Cayey market, Wal-Mart and Amigo would have a combined market share 
greater than 47%; in the Ponce market, the parties' combined market 
share would exceed 38%; and in the Manati market, the combined market 
share would be greater than 59%.
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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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    The complaint further alleges that entry would not be timely, 
likely, or sufficient to prevent anticompetitive effects in the 
relevant geographic markets.
    The complaint also alleges that Wal-Mart's acquisition of all of 
the outstanding voting securities of Amigo, 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 supercenters and club stores owned or controlled by Wal-Mart 
and supermarkets owned and controlled by Amigo; by increasing the 
likelihood that Wal-Mart will unilaterally exercise market power; and 
by increasing the likelihood of, or facilitating, collusion or 
coordinated interaction, each of which increases the likelihood that 
the prices of food, groceries, or services will increase, and that the 
quality and selection of food, groceries or services will decrease, in 
the relevant geographic markets of Puerto Rico.

IV. The Terms of the Agreement Containing Consent Orders

    The proposed consent order will remedy the Commission's competitive 
concerns about the proposed acquisition. Under the terms of the 
proposed consent order, Proposed Respondents must divest four Amigo 
supermarkets, in Cidra, Ponce, Manati, and Vega Baja, Puerto Rico. In 
each region, Wal-Mart owns or plans to open at least one supercenter or 
club store. The divestitures are to an up-front newly-formed entity 
founded by experienced supermarket owners which would be a new entrant 
in the relevant geographic markets and which the Commission has 
evaluated for competitive and financial viability. The Commission's 
evaluation process consisted of analyzing the financial condition of 
the proposed acquirer to determine that it is well qualified to operate 
the divested stores.
    Proposed Respondents will sell the four Amigo stores to 
Supermercados Maximo, Inc. (``Purchaser''), which is headquartered in 
Hato Rey, Puerto Rico. Purchaser includes as its founders and 
management two former long-time members of Amigo's board of directors. 
All of the managers at the four stores are expected to remain in place 
(and each store is headed by management teams that have worked together 
for over three years).

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    The proposed consent order requires that the divestitures occur no 
later than ten business days after the acquisition is consummated. 
However, if Proposed Respondents consummate the divestitures to 
Purchaser during the public comment period, and if, at the time the 
Commission decides to make the order final, the Commission notifies 
Proposed Respondents that Purchaser is not an acceptable acquirer or 
that the asset purchase agreement with Purchaser is not an acceptable 
manner of divestiture, then Proposed Respondents 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, Proposed Respondents must divest those assets only to an acquirer 
that receives the prior approval of the Commission and only in a manner 
that receives the prior approval of the Commission.
    The proposed consent order also enables the Commission to appoint a 
trustee to divest any supermarkets or sites identified in the order 
that Proposed Respondents have not divested to satisfy the requirements 
of the order. In addition, the order enables the Commission to seek 
civil penalties against Proposed Respondents for non-compliance with 
the order.
    The proposed consent order further requires Proposed Respondents to 
maintain the viability of the supermarkets identified for divestitures. 
Among other requirements related to maintaining operations at these 
supermarkets, the proposed consent order specifically requires 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 the supermarkets' marketability or 
viability; (4) maintain the supermarkets consistent with past 
practices; (5) use best efforts to preserve the supermarkets' 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 prohibits Proposed Respondents from 
acquiring, without providing the Commission with prior notice, any 
supermarket, supercenter, or club store, or any interest in any 
supermarket, supercenter, or club store located in the municipalities 
that include Cayey, Cidra, Ponce, Juana Diaz, Barceloneta, Manati, and 
Vega Baja for ten years. These are the areas from 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 restrict the Proposed Respondents from 
constructing new supermarkets, supercenters, or club stores in the 
above areas; nor does it restrict the Proposed Respondents from leasing 
facilities not operated as supermarkets, supercenters, or club stores 
within the previous six months.
    The proposed consent order further prohibits Proposed Respondents, 
for a period of ten years, from entering into or enforcing any 
agreement that restricts the ability of any person acquiring any 
location or interest in any location used as a supermarket, 
supercenter, or club store in Puerto Rico, to operate a supermarket, 
supercenter, or club store at that site, if that site is or was 
formerly owned or operated by Proposed Respondents in any of the above 
areas.
    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 
order, and every thirty days thereafter until the divestitures are 
completed, and annually for ten years.

V. Opportunity for Public Comment

    The proposed consent order has been placed on the public record for 
thirty days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty 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 the supermarkets to Purchaser, 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.

    By direction of the Commission, Commissioner Anthony recused.
Donald S. Clark,
Secretary.
[FR Doc. 02-30084 Filed 11-26-02; 8:45 am]
BILLING CODE 6750-01-P