Taiwan Family Mart Co., Ltd. & Nikomart Co.

Case:

Key Words:

circulation business, convenience store

Reference:

Fair Trade Commission Decision of August 23, 2007 (the 824th Commissioners' Meeting)

Industry:

Retail Sale in General Merchandise Stores with Food, Beverages or Tobacco Predominating (4711)

Relevant Laws:

Article 6(1) ,11(1), 11-1 and 12(1) of the Fair Trade Law

Summary:

1. This case was originated from the facts that: Taiwan Family Mart Co. (hereinafter called "Family Mart") planned to assign its operation of license chains and franchise chains to Nikomart Co. (hereinafter called "Niko") and a portion of Niko regular chain stores were franchised with Family Mart in the name of Niko Mart. This type of merger fell under the type of merger set forth in Articles 6(1)(iii) and (v) of the Fair Trade Law. The provisions provide respectively that "an enterprise is assigned by another enterprise the major part of the business or properties of such other enterprise" and "directly or indirectly controls the business operation or the appointment or discharge of personnel of another enterprise." In addition, the sales for the preceding fiscal year of the enterprises of the merger all reached the threshold amount for the filing of the merger report as stipulated by Article 11(1)(iii) of the Fair Trade Law, and they did not fall within the circumstances set forth in Article 11-1. Therefore, the parties filed a merger report to the FTC in accordance with the Fair Trade Law.
2. With respect to the sales of "daily products" and "shopping products," the chain convenience stores and supermarkets or general merchandise stores are in the high level of substitutable demand; however, with respect to "convenience products" and "emergency products," as well as other affiliated services, such as tax and fees collection, photo developing and printing, home delivery and express, the substitutability of the chain convenience stores and other channels are relatively smaller. Therefore, the relevant products market in this case is to take general merchandize stores, supermarkets and chain convenience stores, which sell daily products, food products, drinks and cigarettes and wines, as the main products market, and take "chain convenience stores" as the "sub-market." As for the geographic market, as a chain convenience store adopts the nationwide single price strategy (it is also that there is no differential price in different areas); even if the convenience store is located in the remote area and faces a lower level of market competition, it will still be indirectly restrained by the pressure of competition brought by the highly concentrated area of convenience stores because of the chain operation mode and single price strategy. Therefore, consumers located in the remote area can also be indirectly protected by the power of market competition. Accordingly, the relevant geographic market in this case is the entire nation.
3. It was found that the enterprises participating in the merger had 7.82% and 1.08% of the total operating revenue of the main market so the merger caused very small effects on the market structure or the concentration level; they had 18.87% and 2.62% of the total operating revenue of the chain convenience stores respectively and ranked second and fifth in such a city respectively. After the merger, Family Mart was still ranked second in the market. Therefore, there was no obvious change in the market structure prior to and after the merger, and there was no obvious deterioration in the level of market concentration. After the merger, the enterprises participating in the merger were still under the restraint of the power of market competition, and could not arbitrarily raise prices; therefore, unilateral effects were not obvious. In addition, the differences between each enterprise' market share in either the main market or submarket were very large; in the same way, the market competition was vigorous and the said enterprises were more difficult to form an joint agreement or collaborate surreptitiously. Therefore, the merger in this case would not have obvious joint effects. Besides, there are no special laws and orders or technical barriers to regulate or be against the newly established shops of retailers. The number of the shops in the forms of these general merchandise shops, supermarkets or convenience stores is increased by approximately 450 this year and potential competitors can competitively pressurize the existing enterprises.
4. After considering the merger in this case, the FTC found that Niko would not only improve the difficult situations on current financial loss and inadequate capital flow, it would also avoid the reduction of trading opportunities of up- and down-stream trading counterparts due to closing the business of the current stores. In the same way, it would be beneficial for Family Mart to adequately amplify the benefits and effects of economic scales and effectively lower the operation cost. Therefore, the FTC found that the merger in this case would not cause substantial harms to the level of market competition and the overall economic benefits brought by the merger would outweigh the disadvantage resulting from the competition restraints. Therefore, in accordance with Article 12(1) of the Fair Trade Law, the FTC does not prohibit the merger of Family Mart and Niko.

Appendix:
Taiwan Family Mart Co., Ltd.'s Uniform Invoice Number: 23060248
Nikomart Co.'s Uniform Invoice Number: 22853777

Summarized by Yang, Chung-lin; supervised by Liao, Hsien-chou