NEW ZEALAND. In a highly contentious ruling The Commerce Commission today published its reasons for declining to grant clearance for DFS Group Limited (DFS Galleria) to acquire 100% of the shares in The Nuance Group’s (Nuance) New Zealand operations.
At the same time it underlined its doubts over Auckland International Airport Limited’s (AIAL) decision last year to appoint a single duty free retailer (DFS) instead of the traditional DFS/Nuance duopoly. That decision is part of a separate investigation by the Commission.
 |
Click here to read the full Commerce Commission reasoning for rejecting the acquisition |
AIAL awarded the single contract to DFS Group in July 2007, after a two-horse race between the airport’s long-time duty free concessionaires, DFS and Regency (The Nuance Group). The seven-year contract began this April, and becomes exclusive from August 2009 when the Regency concession expires.
As a result of that tender disappointment, Nuance agreed to sell its New Zealand operations to DFS. But the latter’s application to buy its rival’s business was declined by the Commission on 28 March. [Note: The Nuance Group New Zealand is jointly owned by The Nuance Group (GECOS/Gruppo PAM and Stefanel) and Newrest. The latter acquired a 40% share in the shares of Nuance Australia & New Zealand in February 2007.]
At the time of the application being rejected the Commission Chair Paula Rebstock said the regulatory body could not be satisfied that the proposed acquisition “will not have, or would not be likely to have, the effect of substantially lessening competition in the market of on-airport retail supply of duty free goods at Auckland International Airport”. At that point it became clear that the Commission was not just focusing on the acquisition but also on AIAL’s decision to opt for one retailer.
Today in a statement on its website, supported by a 56-page ruling, the Commission said it considered that the proposed acquisition would see the removal of the competition posed by Nuance. As a result, it contended, duty free consumers “would no longer have a choice of duty free retailers, and no longer have the ability to compare prices between competing retailers at Auckland International Airport”.
The Commission considered there was likely to be “very limited competition from high street duty free retailers, and duty free retailers located at route-paired airports”, adding: “This competitive constraint would be likely to fall well short of the competition currently posed by Nuance.”
 |
 |  |
 |
The new DFS Group Arrivals store at Auckland Airport marked a transformation of the airport’s retail landscape |
The Commission said it was also concerned that Auckland International Airport Limited (AIAL) “would have little reason to constrain the combined entity’s duty free prices”. And it considered that AIAL would be unlikely to create an additional duty free concession, “as AIAL has a stated policy of only having one duty free concessionaire at Auckland International Airport”.
It noted: “The proposed acquisition is likely to enhance the scope for the exercise of unilateral market power by the combined entity. The Commission considers that prices would increase post-acquisition, and if the experience at Wellington International Airport* is replicated at Auckland International Airport, to the effect on consumers could be of the order of +10%.”
AIAL said in a statement that it was reviewing the Commerce Commission’s reasons and any implications they may have for its decision to move from two to one duty free operators.
It noted: “Auckland Airport notes that the Commerce Commission’s decision in relation to DFS Group’s clearance application is an issue separate from the Commission’s current investigation into Auckland Airport’s decision to move from having two duty free operators to one. That investigation remains in progress.
“Until the current Commerce Commission investigation is concluded, and any effects arising there from are assessed, any impact on duty free concession revenue to be received by Auckland Airport cannot be determined.”
The airport company stated that it did not believe it had breached the provisions of the Commerce Act. It commented: “The move from two duty free operators to one operator will improve the delivery of duty free retail services to the public at Auckland Airport by enhancing the depth and breadth of goods offered and make it a more attractive and competitive shopping destination relative to other international airports. ”
All parties – AIAL, DFS and Nuance – are now effectively in limbo while they await the outcome of the second part of the Commission’s enquiry into AIAL’s one-retailer decision.
That tender was originally called to allow the new retail arrangements to be finalised before the opening of greatly enhanced duty free space in the NZ$100 million international terminal expanded Arrivals project. The project, opened in April, doubled the Arrivals duty free space from 800sq m to 1,600sq m – creating the most extensive Arrivals duty free store in the Asia Pacific region.
* NOTE: The Commission made frequent mention of the situation at Wellington Airport, a smaller international airport which serves the New Zealand capital. There, Wellington International Airport Limited opted to do things in reverse to Auckland – controversially bringing in a second, rival retailer (Nuance) alongside long-time incumbent Duty Free Stores Wellington until the latter’s contract expired and then moving to exclusivity.
The Commission claimed that the aggressive discounting that transpired at the airport after the two-retailer situation began had resulted in an improved deal for the travelling consumer (we’ll examine some of its reasoning in a subsequent follow-up report -Ed) with a sharp drop in all duty free prices.
Drawing a parallel with Auckland, it said: “Based on the above analysis, the Commission concludes that the presence of on-airport duty free competition clearly has an impact on pricing behaviour of duty free retailers at Wellington International Airport.”
COMMENT: All interest now moves to how the Commission will ultimately view AIAL’s choice of a one retailer duty free model. Any move to overrule that decision would have the most profound implications for New Zealand’s travel retail industry.
[comments]
Your post will appear – once approved – in The Moodie Forum on our home page
MORE ON THE PROPOSED DFS ACQUISITION OF NUANCE NEW ZEALAND
Commerce Commission declines DFS Group acquisition of Nuance New Zealand – 31/03/08
