ANALYSIS:The High Court has rejected the view that supermarkets are at the mercy of suppliers
NOT EVEN a supplier the size of the soon-to-be-merged Kerry Group and Breeo Foods has the power to inflict a price increase on the main supermarket multiples. This appeared to be the message emanating from the High Court yesterday as it overturned the Competition Authority’s blocking of Kerry’s takeover of Breeo.
The authority had argued that supermarkets’ buyer power would be insufficient to constrain any post-acquisition price increases sought by Kerry as it flexed its strengthened muscles in the cheese, sausages, bacon, cooked meat and dairy spread markets.
But Mr Justice John Cooke effectively dismissed the idea that the major retail chains would be helpless in the face of such a chilled foods behemoth.
If anything, he seemed to imply in his judgment, there was compelling evidence that the multiples exercised significant buyer power when opposing or delaying price increases sought by suppliers.
The little guys – suppliers who cannot match the clout of Kerry even in its current incarnation – must be shaking their heads in despair.
Kerry, the first company to ever to take such a case against the Competition Authority, has won its argument.
The ruling adds the Breeo portfolio of brands – including cheese labels Mitchelstown and Calvita, breakfast meats brand Galtee and dairy spread Dairygold – to Kerry’s stable of brands, including cheese label Charleville, breakfast meats brand Denny and dairy spreads Low Low and Kerrymaid. Spot the similarities?
But while Kerry’s brand power has been substantially enhanced, the Irish consumer foods market is a rather less friendly place than it was when Kerry first bid for Breeo, the consumer foods division of Reox Holdings, in January 2008.
This is reflected in the price tag at which Kerry now expects to complete the deal next week: €140 million rather than the €165 million it originally proposed.
Despite the chilly state of the Irish consumer foods market, food sector analysts view the purchase as positive for Kerry; Breeo is “entirely complementary” with Kerry Foods, according to Kerry Group chief executive Stan McCarthy, who promised “significant synergies” in the months ahead.
“Synergies” often translate into the rather harsher sounding “job losses”, and yesterday’s High Court ruling was swiftly followed by a statement from Seán Sherlock, Labour Party agriculture and food spokesman, who called for jobs at the Dairygold plant in Mitchelstown to be preserved.
The future is also uncertain for Reox Holdings. Having this week axed its chief executive, the spin-off from the Dairygold co-op is now left with a chain of DIY stores trading in a post-bubble market and a property portfolio that is largely on ice.
Reox chairman Flor Riordan welcomed the imminent sale of Breeo yesterday in a manner that suggested that Dairygold farmers will be happy to finally get their hands on the €140 million. But farmers weren’t best pleased yesterday when Dairygold cut milk prices. The Irish Farmers’ Association claimed the spoils from Breeo should allow Dairygold to revisit its “disastrous” pricing policy.
