Couche-Tard’s proposed acquisition of retail gasoline sites from Imperial Oil

Position Statement

See the news release that corresponds to this position statement.

OTTAWA, September 7, 2016 — On September 7, 2016, the Competition Bureau announced that, following a review of Couche‑Tard’s proposed acquisition of 293 retail gasoline sites in Ontario and Quebec from Imperial Oil ("IOL"), it has reached an agreement with Couche‑Tard that preserves competition for the retail sale of gasoline in Carleton Place, Ontario and Saint‑Bruno‑de‑Montarville/Sainte‑Basile‑le‑Grand, Quebec ("Saint‑Bruno/Saint‑Basile").

In March 2016, Imperial Oil had announced its intention to sell its 497 Esso retail stations in Canada to five fuel distributors, including Couche‑Tard.Footnote 1 The Bureau reviewed Couche‑Tard’s acquisition of 293 retail gasoline sites using an approach consistent with that adopted in previous retail gasoline reviews.Footnote 2 The Bureau identified two retail sites for which a sale to Couche‑Tard raised concerns of a substantial lessening or prevention of competition in their relevant local markets. This statement focuses on summarizing the Competition Bureau’s review of the aforementioned sale of IOL stations to Couche‑Tard and describes its conclusion in respect of the Carleton Place and Saint‑Bruno/Saint‑Basile markets.

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Pursuant to an agreement dated March 8, 2016, Couche‑Tard is proposing to acquire 51 retail gasoline sites in the Greater Montreal Area (GMA) and 242 retail gasoline sites in Ontario from IOL. Couche‑Tard, through its subsidiaries, owns and operates convenience stores and gasoline stations in North America and Europe. Within Quebec and Ontario, Couche‑Tard operates 370 and 126 retail gasoline sites respectively, under various banners, including "Couche‑Tard" and "Mac’s".

The Bureau’s review focused on assessing whether the proposed transaction would be likely to substantially lessen competition in local geographic markets where both Couche‑Tard and IOL operate retail gasoline stations. Given that Couche‑Tard does not distribute wholesale gasoline to third‑party retailers, and that the proposed transaction does not involve the acquisition of gasoline distribution contracts, the distribution of gasoline to third‑party stations by the Parties was not a focus of the Bureau’s analysis in this case.Footnote 3

In the course of its review, the Bureau conducted interviews with various market participants, including gas station operators and industry experts; reviewed documents and information provided by the parties and third parties; and analyzed transaction‑level data, as well as data on prevailing retail gasoline pricing in specific regions of interest.


Market definition

The Bureau conducted an analysis consistent with the framework established in its review of Parkland’s acquisition of Pioneer (and then adopted in several recent retail gasoline mergers, including the reviews of the acquisitions of Imperial Oil’s other Esso retail stations by four other fuel distributors)Footnote 4, including an assessment of the impact of the proposed transaction through both unilateral and coordinated effects. As in those cases, the relevant product market was deemed to be the retail sale of gasoline, as vehicle operating specifications constrain consumers in their ability to switch to other fuels. The relevant geographic market considered was generally local, given transport and opportunity costs associated with purchasing at more distant stations.

The Bureau conducted a detailed analysis of numerous local markets in Ontario and the GMA, in order to determine which stations should be included in a given local market, and closely evaluated each station’s effectiveness as a competitor. In this regard, the Bureau relied on interviews with market participants, strategic and pricing documents provided by the parties, data analysis, and expert opinion.

Consistent with previous cases, the broad factors examined by the Bureau in its local analyses included the strengths and weaknesses of specific stations (e.g. location quality, convenience and marketing effectiveness), consumer traffic patterns, information on prevailing pricing, and demographic data. Furthermore, the Bureau closely examined, where available, evidence on the historical behaviour and ongoing strategies of the parties (or their competitors) as they relate to price‑monitoring and price‑setting at local stations in a given market.

The Bureau’s analysis confirmed that the breadth of the relevant geographic market, as well as the factors most closely examined in its determination, may vary significantly among local areas. In dense urban areas, for example, the Bureau particularly considered the impact of numerous overlapping pricing strategies (and corresponding monitoring areas), which may result in a station indirectly competitively constraining the pricing of other relatively distant stations through a chain reaction of price responses by nearer competitors. Outside of major metropolitan areas, in the case of certain satellite or commuter towns for example, the Bureau closely examined the competitive constraint potentially imposed on local stations by those in the nearest urban center. In these cases, the Bureau studied the prevalence of commuting among residents of the area, traffic patterns on nearby highways and thoroughfares, and the degree to which local stations were constrained, as evidenced in their price discounting and monitoring behaviour, by retailers outside the local community.

Competitive effects

The Bureau’s analysis ultimately led it to conclude that the proposed transaction would likely result in a substantial lessening of competition in two local areas, namely Carleton Place, Ontario and Saint‑Bruno/Saint‑Basile, Quebec. In both markets, Couche‑Tard proposes to acquire one Esso‑branded station operated by IOL.

In both Carleton Place and Saint‑Bruno/Saint‑Basile, the Bureau determined that the Parties account for a significant proportion of retail gasoline sales in the local area, and that the proposed transaction would result in market shares well above the 35% threshold established in the Merger Enforcement Guidelines. Furthermore, while certain local competitors will remain post‑transaction, the Bureau found that the Parties operate influential stations with attractive amenities in both local markets. Moreover, evidence reviewed by the Bureau indicated that prices in both these areas were largely determined by local competitive dynamics (and discounting strategies among nearby competitors), and that a post‑transaction price increase in those local areas would therefore not likely be constrained by stations outside Carleton Place or Saint‑Bruno/Saint‑Basile.

As in previous cases, the Bureau also considered the impact of the Proposed Transaction on the ability and incentives of competitors in the relevant markets to more effectively coordinate on pricing, having regard to a number of factors, including the reduced and limited number of competitors, the similarity of products offered, and the transparency of pricing and of other market information.

As a result of its analyses, the Bureau found that, following the proposed transaction, Couche‑Tard would have the ability, as well as an increased economic incentive, to raise prices (or reduce the rate of price discounting) at its stations in the markets at issue. This conclusion was further informed by an analysis of transaction‑level data conducted by the Bureau in order to empirically estimate the likely effect of the merger on prices in Carleton Place and Saint‑Bruno/Saint‑Basile.

Barriers to entry

The Bureau determined that significant barriers to entry and expansion exist in the relevant markets, including, but not limited to, high fixed costs, and the need for environmental and regulatory approvals. Previous analysesFootnote 5 have found that constructing a new retail gas station can cost from $2 to $4 million, and the process may take 18‑32 months, including financing, regulatory approvals, and construction.

Conclusion and remedy

Based on the significant concentration resulting from the proposed transaction and the substantial barriers to entry, among other factors, the Bureau concluded that the merger was likely to substantially lessen competition through a unilateral exercise of market power, as well as increase the level of concentration in the retail supply of gasoline such that the extent, likelihood, frequency and duration of tacit coordination may be increased.

The Bureau and Couche‑Tard have entered into a Consent Agreement which requires Couche‑Tard to divest a station in each of Carleton Place, Ontario, and Saint‑Bruno/Saint‑Basile, Quebec. In both markets, the divestiture of a suitable retail gasoline station was deemed sufficient to eliminate any increase in concentration resulting from the proposed transaction.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.

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