Premier Foods has agreed to sell Erin, its largest retail brand in the Republic, in order to facilitate its purchase of RHM, the British plc that sells the Sharwoods, Saxa and Bisto brands here.
The Competition Authority made the "divesting" of Erin by Premier a condition for allowing Premier's purchase of RHM to proceed. Brian McManus, a former chief executive with IIB Homeloans, is to be appointed trustee and will supervise the management of the business pending the sale of Erin. Erin employs approximately 130 people in Thurles, Co Tipperary, and the decision by the Competition Authority means the operation can now be sold as a going concern.
The purchase of RHM by Premier Foods was approved without conditions by the Office of Fair Trading in Britain.
Premier is active in Ireland, Britain and continental Europe. In the Republic its brands include Campbells, Oxo, Erin and McDonnells. RHM is active in the same markets. In Ireland its principal brands are Sharwoods, Paxo, Saxa, Bisto and McDougalls. Its Gateaux cakes and Saxa salt products are manufactured under licence in the Republic.
The inquiry by the Competition Authority concluded that the purchase would not create competition difficulties in the soups and sauces markets, but would create a difficulty in the gravy market.
It found that, unlike with the British market, own brand gravy products were not popular with Irish consumers. The Bisto brand has 50-60 per cent of the market, while the Erin brand had 10-20 per cent and Oxo up to 5 per cent. Post merger, the companies would have up to 80 per cent of the gravy market.
The companies submitted that the repeal of the Groceries Order had led to "fierce and increasing competition, in particular on price, between the major retailers" and that this undermined the ability of suppliers to dictate retail prices.
They argued that Tesco, Dunnes, Musgrave and Superquinn between them account for 78.9 per cent of Irish grocery sales "so that even suppliers with sizeable shares are unlikely to have any real influence".
However, the authority was not convinced by this argument. It had been told by retailers that they feared a dominant supplier in the gravy market. Both retailers and suppliers said consumers would not stop buying a gravy brand because of a 5-10 per cent price increase.
In the light of the view taken by the authority on the gravy market, Premier suggested that it sell not just Erin gravy but other Erin meal enhancers such as sauces and casserole mixes. It alternatively suggested that it sell the entire Erin business. The authority decided that splitting the Erin brands (meal enhances and soups) would make the purchase of Erin less attractive.
The second proposal did not have this difficulty and would retain the existing level of competition in the gravy market. It would mean the prospective buyer could purchase the entire Erin operation.
