Analysis of the Kraft Food- Cadbury Merger
Table of contents
I. Introduction 4
II. The case 5
III. Analysis: competitive assessment 6
1) Confectionery sector overview. 7
2) Relevant product market 9
3) Relevant geographic markets 11
4) Unilateral Effects 11
IV. Our results: pro-collusive effects and efficiency gains. 14
V. Conclusions 15
Bibliography 16
I. Introduction
Kraft is a worldwide food and beverage company active in more than 150 countries with annual revenues of $48 billion while Cadbury is a worldwide producer and seller of chocolate and sugar confectionery products in over 60 countries. As stated by the European Commission: “Both Kraft and Cadbury are strong players in the chocolate confectionary business in the European Economic Area. With its main chocolate brands Milka, Côte d 'Or and Toblerone, Kraft has a very strong presence in most Member States, with the exception of the UK and Ireland where customers ' preferences remain strong for traditional British chocolate. Cadbury is the market leader in the UK and Ireland, in particular with its brand Dairy Milk, while in continental Europe it is mainly active in France, Poland, Romania and Portugal, through local brands which it previously acquired.” (European Commission, 2010)
Kraft Food welcomed the merger with Cadbury with the following statement: “The combination would build on Kraft Foods ' position as a global powerhouse in snacks, confectionery and quick meals with a rich portfolio of iconic brands.” (Kraft Food Inc., 2010)
Of course, the merger is here presented as producing gains for the vastest majority of stakeholders but it was the concern of the European Commission to verify that those gains would have not been offset by the losses it may create. In fact, the ratio laegis of the Merger Regulation is to impede those activities which can be detrimental for the society and reduce economic welfare.
In this framework competition plays a major role. In fact, in the definition provided by the European
I. Introduction 4
II. The case 5
III. Analysis: competitive assessment 6
1) Confectionery sector overview. 7
2) Relevant product market 9
3) Relevant geographic markets 11
4) Unilateral Effects 11
IV. Our results: pro-collusive effects and efficiency gains. 14
V. Conclusions 15
Bibliography 16
I. Introduction
Kraft is a worldwide food and beverage company active in more than 150 countries with annual revenues of $48 billion while Cadbury is a worldwide producer and seller of chocolate and sugar confectionery products in over 60 countries. As stated by the European Commission: “Both Kraft and Cadbury are strong players in the chocolate confectionary business in the European Economic Area. With its main chocolate brands Milka, Côte d 'Or and Toblerone, Kraft has a very strong presence in most Member States, with the exception of the UK and Ireland where customers ' preferences remain strong for traditional British chocolate. Cadbury is the market leader in the UK and Ireland, in particular with its brand Dairy Milk, while in continental Europe it is mainly active in France, Poland, Romania and Portugal, through local brands which it previously acquired.” (European Commission, 2010)
Kraft Food welcomed the merger with Cadbury with the following statement: “The combination would build on Kraft Foods ' position as a global powerhouse in snacks, confectionery and quick meals with a rich portfolio of iconic brands.” (Kraft Food Inc., 2010)
Of course, the merger is here presented as producing gains for the vastest majority of stakeholders but it was the concern of the European Commission to verify that those gains would have not been offset by the losses it may create. In fact, the ratio laegis of the Merger Regulation is to impede those activities which can be detrimental for the society and reduce economic welfare.
In this framework competition plays a major role. In fact, in the definition provided by the European
Bibliography: • Datamonitor (2009). Confectionery in the United States. Retrieved on June 3, 2010 through Business Source Premier: http://web.ebscohost.com.libproxy.unibz.it/ehost/detail?vid=1&hid=105&sid=22ba61aa-0848-41da-8cbb-9c47f55832c9%40sessionmgr113&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=44158246 • Datamonitor (2009). Confectionery in Europe. Retrieved on June 3, 2010 through Business Source Premier: http://web.ebscohost.com.libproxy.unibz.it/ehost/detail?vid=1&hid=105&sid=65304384-f475-4587-974c-3ab1f8330cf8%40sessionmgr111&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=44158232 • European Commission (2010). Case n COMP/M. 5644 Kraft Foods/Cadbury. Retrieved on June 3, 2010 from: http://ec.europa.eu/competition/mergers/cases/decisions/m5644_20100106_20212_en.pdf • Kraft Food, Inc (2010). Annual report. Retrieved on June 3, 2010 from: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDk3MDF8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 • Motta, M. (2004). Competition Policy: Theory and Practice.New York, United States: Cambridge University Press. i Datamonitor is a leading business information company specializing in industry analysis. Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive, Energy, Consumer Markets, and Financial Services.The company also advises clients on the impact that new technology and eCommerce will have on their businesses. Datamonitor maintains its headquarters in London, and regional offices in New York, Frankfurt, and Hong Kong. The company serves the world’s largest 5000 companies. (Datamonitor, 2009) ii Unfortunately we did not find any specific data about the market shares in each segments for all the competitors in the market. We tried to look into old balance sheets and try to link the total sales of a specific product in a specific country to the overall chocolate confectionery market value. However we did not find any detailed information (for free). Since we assume that the real market share is a value between the upper and lower bound of the interval written in the EC documents, to overcome this shortcoming, we decided to calculate the average of the upper and lower bound and use the result for constructing the HHI iii All relevant information are given in the case retrieved from the European Commission website.