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The Grocer – Third Party Article by Food Strategy Associates.

Posted on: October 14th, 2012 by Robert Lawson

THE THIRD PARTY ESSAY – GROCER MAGAZINE 13 OCTOBER 2012

 THE OFT SHOULD STOP INTERFERING IN DEALS

 

The OFT has announced that Mizkan is offering to sell its  Burntwood vinegar production site to ensure its proposed acquisition of Premier Foods’ vinegar business is cleared without further referral. The OFT is considering it.

On the face of it, this looks of limited importance, but this is one of a number of recent transactions where remedies have been required to clear the deal and appears to be symptomatic of a tougher regulatory environment.

The same regulatory regime that allowed consolidation of c-stores into the ownership of the mults in  on the grounds they operate in a single mega retail market has gone micro in defining what constitutes a food market.

The result is more interference.  Canned meat pies, Christmas pudding and vinegar have come under the regulator’s scrutiny and remedies have been demanded, usually in the form of the brand or business needing to be sold to a third party.

A number of arguments have historically worked for the consolidator. Firstly  an apparent presumption by the regulator that UK retailers were powerful enough to look after themselves. Secondly, the fact that alternative sources of supply were available.

It appears the OFT is less convinced by these arguments than it used to be. It is as if it lacks the confidence to clear transactions. And yet, the evidence is that food prices have fallen for consumers as manufacturers have modernised their supply chains and retailers have passed on savings.

The irony is that increased intervention risks damaging rather than enhancing  consumer value and choice. Manufacturing is facing greater pressures than ever, and business consolidation is one essential route to mitigating the impact of raw material inflation and creating the potential for investment in technology, efficiency and innovation.

By interfering, regulators risk reducing M&A activity. Many categories are burdened with significant over-capacity and consolidation is an effective way to rationalise older factories and reduce producer costs. Regulators need to allow the industry to consolidate and modernise if they are to deliver their primary goal: to benefit consumers through better prices.

Robert Lawson is co-founder of Food Strategy Associates, www.foodstrategy.co.uk

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