Irish Competition Authority Decisions

1. Notification was made by Bewleys Manufacturing Ltd, Butlers Irish Confectionery Ltd, and others [Chez Nous Ltd, Sorenson family, and Bewley’s Cafes Ltd] on 30th September 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2) in respect of a joint venture agreement.

2. The Notification concerns a share purchase agreement between Bewleys Manufacturing Limited and Butlers Irish Confectionery Ltd. Bewleys Manufacturing Limited acquired a minority shareholding in Butlers Irish Confectionery Ltd with a view to establishing a joint venture, a manufacturing company, to be named Irish Chocolate Company Limited, for the production of boxed confectionery products sold under the Bewley's and Butlers brand names.

3. Bewleys Manufacturing Limited is a wholly owned subsidiary of Campbell Bewley Group Limited, whose registered offices are at 11/12 Westmoreland Street, Dublin 2. The Campbell Bewley Group Limited is engaged in several different businesses: (a) the business of contract catering; (b) retail shops and cafes; (c) wholesale supply of coffee, tea and speciality brands and confectionery.

4. Chez Nous Limited, with registered offices at Unit 5, IDA Enterprise Centre, Pearse Street, Dublin 2 is the parent company of Butler’s Irish Confectionery Limited who also have their registered offices at IDA Enterprise Centre (Unit 27), Pearse Street, Dublin 2. Butler’s Irish Confectionery Limited retail hand-made Irish chocolates. The Irish Chocolate Company Ltd is a manufacturing company in which Butler’s Irish Confectionery Limited and Bewleys Manufacturing Limited were shareholders. However since 1992, the minority shareholding of Bewley’s Manufacturing Limited has been transferred to Campbell Bewley Group Limited. The latter now have a shareholding of 28.5%; Chez Nous Limited, parent company of Butler’s Irish Confectionery Limited, have the remaining 71.5% shareholding.

5. The notifying parties claimed that the relevant product market was the confectionery market and the relevant geographical market was the State, with the product available throughout the State. All the different products within the relevant market are substitutable for each other. The notifying parties claimed that the confectionery market was highly competitive; in addition to having well known multi-national companies such as Cadbury, Rowntrees, Suchard, Leonidas, Mars, Gateaux and Mr. Kippling, there are also small confectioners who compete locally throughout the State.

6. The parties to the agreement operate predominantly in the boxed chocolates sector, which is a small part of the chocolate sector. The notifying parties claimed that it is easy for a new supplier to enter the market and that the outlay required for start-up is not excessive. However, to compete with well-known brands requires substantial investment.

7. Bewleys via the Irish Chocolate Company Limited estimates that it has a market share of less than [ ]% in the Boxed Chocolates sector. The notifying parties claimed that its market share in the relevant product market is insignificant. The Campbell Bewley Group Ltd., and several of its subsidiaries also compete in the confectionery market, but not in the boxed chocolate market, either directly or indirectly.

8. The Authority is of the view that the relevant market is the boxed chocolates sector of the Irish confectionery market.

9. The arrangement relates to the combination of manufacturing facilities of Bewley's Manufacturing Limited and Butlers Irish Confectionery Limited with a view to achieving more efficient production and increased sales of confectionery products sold under their respective brand names. The agreement is for an indefinite duration.

10. The notifying parties outlined certain provisions in the Agreement which they thought may restrict the parties in their freedom to take independent commercial assistance. Under clause 4.1 the Parent Company [Chez Nous], the Directors [The Sorenson family] and the Subscriber [Bewley’s Manufacturing Ltd] agree that their common purpose is to combine manufacturing facilities of the Company [Butler’s Irish Confectionery Ltd] and the Subscriber with a view to achieving improved quality, more efficient and profitable production and increased sales of sweets to be sold under their respective brand names.

11. Under clause 4.2 the Subscriber undertakes to the Parent Company to ensure that the Company shall have the exclusive right to manufacture and wholesale the confectionery product under the Bewley's name. Under clause 4.4 the Subscriber and Guarantor [Bewleys Cafes Limited] state that they shall use their best endeavours to ensure the following:

(i) all customers (including Bewley's own shops and franchise operations) which currently purchase Bewley's chocolate and fudge shall transfer their custom to the Company;

(ii) all retail outlets with which the Subscriber and Guarantor are associated and who currently sell confectionery products or shall do so in the future will trade with the Company where possible and

(iii) distribution organisations associated with the Subscriber and Guarantor will trade with the Company where possible and mutually beneficial.

12. The Subscriber and Guarantor undertake to the Parent Company and to the Directors for a minimum of five years to ensure that the products referred to in the Agreement shall be sold in outlets owned by them or their associate companies. The Company agrees to use its best endeavours to promote the "Bewley's" brand name on its products and to promote the sale of the products.

13. The Company agrees that it shall not introduce or discontinue any line of Bewley's chocolate or confectionery products without the consent of the Subscriber. The Parent Company and the Directors undertake with the Subscriber to ensure that the Company supplies the confectionery products manufactured under the Bewley's brand name to all Bewley's retail outlets under normal trading terms at competitive prices having regard to brand names, manufacturing margin, the objective of optimising profits for both the Company and retail outlets and the current retail market price for such products.

14. The notifying parties submitted that the Agreement did not have the object or effect of preventing, restricting or distorting competition in the State for the following reasons:

(i) there is at present strong competition in the market for the products in question;

(ii) due to the strong competition in the market, it was necessary for Bewley's and Butler's Irish Confectionery Limited to rationalise their operations with a view to achieving improved quality, more efficient and profitable increased sales for confectionery sold under their respective brand names to survive in the competitive confectionery market.

15. The parties submitted detailed arguments in support of the granting of a Licence. However, the Authority is of the opinion that the grant of a Licence does not apply in this particular instance.

16. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service’. Both Bewley’s Manufacturing Limited and Butlers Irish Confectionery Limited are engaged in the production and distribution of goods for gain, and they are therefore undertakings within the meaning of the Act. The agreement is an agreement between undertakings. The agreement has effect within the State.

17. The agreement is a share purchase agreement which gives the manufacturing company, the Irish Chocolate Company Limited, the sole right to manufacture boxed confectionery under the Bewley’s trade name. The objective of the agreement is the joint use of production (and distribution) facilities.

18. The Authority is of the view that the confectionery market in the State is diverse with many different products available including the price sensitive (brand) boxed chocolates which are produced by small specialised confectionery manufacturers, including the joint venture, which is the subject of this notification.

19. The joint venture facilitates both Bewley’s Manufacturing Limited and Butlers Irish Confectionery Limited in the creation of a niche market for boxed confectionery products, sold under their respective brand names. The Authority is of the view that this agreement is unlikely to have a significant effect on competition. There is a large number of competitors in the market, barriers to entry are low and the market share of the joint venture company is small. Therefore the Authority is of the opinion that the agreement does not contravene Section 4(1) of the Act.

20. In the Authority’s opinion Bewley’s Manufacturing Limited and Butlers Irish Confectionery are undertakings within the meaning of Section 3(1) of the Competition Act and the notified arrangements constitute an agreement between undertakings. In the Authority’s opinion the joint venture agreement dated 1st May 1989 does not contravene Section 4(1) of the Competition Act.

The Competition Authority has issued the following certificate

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the joint venture agreement dated 1st May 1989 between Bewleys Manufacturing Limited, Butlers Irish Confectionery Limited and Others notified under Section 7 of the Competition Act on 30th September 1992 (Notification No. CA/915/92E), does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

Professor Patrick McNutt

Chairperson

27 May 1999