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BGC Partners: FOOD RETAIL: Competition Board initiates probe into 23 retailers, potentially negative for listed retailers

The Competition Board initiates probe into 23 retailers on whether they engaged in the violation of anti-trust laws in setting water, fresh fruit and vegetable prices. Almost all known food retail chains are included: BIMAS, SOKM, MGROS, CRFSA, ADESE among listed and A101’s legal entity Yeni Magazacilik; in addition to wholesaler Metro Grosmarket and other local well-known chains like Makro Market (which acquired de-listed Uyum). The probe may or may not result in a decision that all or some of the said companies have engaged in anti-competitive behavior while it can take from around a couple of months to 2 years to conclude the probe based on previous examples. If the companies are found guilty of anti-competitive behavior, the penalties can be between 0.5% to 4.0% of the revenue for the year prior to the initiation of the probe. Depending on the nature of the violation and the weight of the business in violation in the overall business of the company, the fine can be reduced by 25% to 60% by the competition authority. Typically we have seen fines up to 1.5% of revenue in past examples. We note that fresh fruits and vegetables account for c3% of BIM’s revenue, c6% of Sok’s revenue and 7-8% of Migros’ revenue. We would guess that even including water, the share of the debated products in revenue would not exceed 5% of revenue for BIM, 8% of revenue for Sok and 10% of revenue for Migros. Competition Board probe is not good news for the companies under investigation. That said, we note that food retailing is very competitive in Turkey and the players in organized retail work vigorously to match the prices of street bazaars (open markets) in fresh fruits and vegetables while water for home use is usually directly purchased from water companies.