Summary of transaction:
(i) the names of the merger parties;
(a)Topwin Investment Holding Pte Ltd (“Topwin”), a wholly owned subsidiary of BreadTalk Group Limited (“BT”); and
(b) Food Junction Management Pte Ltd (“FJM”)
(ii) a description of the transaction;
The notification relates to the proposed acquisition by Topwin of 100 per cent. of the issued share capital in FJM (the “Proposed Transaction”).
(iii) a description of the business activities of the merger parties worldwide and in Singapore;
Topwin’s principal business activity is that of investment holding and provision of management services. Topwin’s subsidiaries are in the business of rental of stalls in the food court premises that they manage, and sale of food and beverage in food courts, in Cambodia, China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand. As a group, BT’s primary business is in food and beverage retail, and operates and franchises close to 1,000 outlets in various formats in and outside of Singapore, including bakeries, restaurants, food courts and cafes.
BT’s business of operating food courts and food court stalls in Singapore is solely operated by Food Republic Pte Ltd (“Food Republic”), except for certain mini restaurants (located within the food court premises operated by Food Republic) which are operated by other subsidiaries of BT.
FJM and its subsidiaries, namely Food Junction Singapore Pte Ltd (“FJS”) and T&W Food Junction Sdn Bhd (“TWFJ”), are principally in the business of operating food court premises and food court stalls in Singapore and Malaysia.
(iv) a description of the overlapping goods or services, including brand names;
BT and FJM (the “Parties”) primarily overlap in the following:
(a) the sale of drinks, fruits, snacks, desserts and hot meals to individual consumers in food court premises; and
(b) the rental of stalls to food vendors located within food court premises,
(collectively referred to as the “Overlapping Products”).
(v) a description of substitute goods or services;
Topwin submitted that from the demand-side perspective, the closest substitutes for drinks, fruits, snacks and hot meals in food court premises are those found in hawker centres and coffee shops. The demand-side substitutes for a food vendor to renting stalls in food court premises would be to rent such stalls in a hawker centre or coffee shop.
From the supply-side perspective, the substitutes for the sale of drinks, fruits, snacks, desserts and hot meals in food court premises are food vendors in other hawker centres, coffee shops or food halls, who can move into setting up their own standalone premises for the sale of food, or leasing individual stalls from the master lessors or landlords. The supply-side substitutes for the rental of stalls in food court premises would be other operators of coffee shop and hawker centre premises leasing space to food vendors for the sale of cooked food.
(vi) the applicant’s views on:
a. definition of the relevant market(s);
Topwin submits that the relevant markets are:
the sale of hot meals to individual consumers in food courts, coffee shops and hawker centres within catchment areas of 500 metre radius; and
the rental of stalls to food vendors located within food court and coffee shop premises within catchment areas of 500 metre to one kilometre radius.
b. the way in which competition functions in this market;
Topwin submits that both relevant markets are highly competitive. The sale of hot meals is a highly contested space in which suppliers of hot meals in food courts, coffee shops and hawker centres compete primarily on price, quality, convenience and variety of offerings with competing suppliers located within the vicinity.
For rental of stalls to third-party stall operators, operators of coffee shop and food court premises mainly compete on price, location, rental terms and conditions, and also on the store concept, quality of the premises and fittings, and overall management services.
c. barriers to entry and countervailing buyer power; and
Barriers to entry
The barriers to entry and expansion are low in both relevant markets, as it is not unduly restrictive or onerous for vendors and operators to obtain the necessary operating licenses and approvals from the Government. Moreover, new hawker stall tenants can leverage government subsidies to defray their start-up cost. Further, as most stalls in food courts and coffee shops typically come pre-fitted with basic infrastructure, this would reduce the start-up capital required by any new tenant. As the Urban Redevelopment Authority (“URA”) continues to undertake large-scale re-development plans in many regions across Singapore, more sites are expected to be made available for coffee shop and food court operations in the short and medium term. In addition, an increasing number of master lessors are adopting the use of technologies within their premises, which would reduce the amount of operational costs required for market entry and expansion.
Countervailing buyer power
For the sale of hot meals, individual consumers virtually face no switching cost and generally have various options of cooked food providers available to them within walking distance. Consumers can also self-supply by bringing their own meals from home to consume at work, or for certain out-of-home purposes.
For the rental of stalls, there are no restrictions on the tenant switching to another food court or coffee shop operator, upon contract expiry. Food vendors are generally able to switch to competing outlets easily after their contracts expire, as stalls within food court and coffee shop premises typically come fitted with basic infrastructure. Further, if the rental terms offered by BT are not competitive when contracts are negotiated, tenants can easily switch, with minimal cost, to other coffee shop and food court premises at other locations, or threaten to switch to negotiate for better terms.
d. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).
Topwin submits that the Proposed Transaction will not give rise to non-coordinated effects in the relevant market for the sale of hot meals to individual consumers in food courts, coffee shops and hawker centres within catchment areas of 500 metre radius, because:
- the Parties directly operate only a very limited number of stalls (including drinks stalls) within their own premise. Accordingly, the merged entity will continue to be constrained by a large number competing food vendors within the Parties’ premises, without even considering the multitude of competing food vendors located within each of the 500 metre radius catchment areas;
- consumers are highly sensitive to factors such as price, convenience, variety and quality of food offering, and virtually face no cost in switching across multiple choices of providers available to them within walking distance; and
- the barriers to entry and expansion are low for food vendors looking to set up new stalls in food courts, coffee shops and hawker centres, as it is not unduly restrictive or onerous for food vendors to obtain the necessary operating licenses from the Government. It is also not overly costly for food vendors to set up new food stalls in food courts, coffee shops and hawker centres.
Topwin submits that the proposed Transaction will not give rise to non-coordinated effects in the relevant market for the rental of stalls to food vendors located within food court and coffee shop premises within catchment areas of 500 metre to one kilometre radius, because:
- the merged entity will continue to compete with a host of competing food court and coffee shop premises within each of the 500 metre and one kilometre radius. Many established operators, such as Kopitiam, Koufu, Chang Cheng, Broadway and NTUC Foodfare, which have strong competitive capabilities and have been seen to be expanding in recent years, are identified in the catchment areas.
- as it is a common practice for food vendors to participate in multiple competing selection processes and are at liberty to select the most favourable offer it successfully secures, the merged entity will not be able to maintain its current sales or grow its business unless it continues to match its competitors in terms of price, quality and value;
- countervailing buyer power is high. If the rental terms offered by BT are not competitive when contracts are negotiated, tenants can easily switch, with minimal cost, to other coffee shop and food court premises at other locations, or threaten to switch to negotiate for better terms;
- there is a strong incentive for the merged entity to maintain competitive terms and lease out its stalls quickly, so that the merged entity can collect rental income to pay its landlords on time;
- the merged entity faces strong countervailing constraints by landlords, who may not choose to renew the master lessor if the rental rates imposed on food vendors are too high, which translates to fewer food vendors and consequently lower foot traffic to the landlords’ premises; and
- the barriers to entry and expansion are low, as it is not unduly restrictive or onerous for operators to obtain the necessary operating licenses from the Government. Further, more sites are expected to be created for food court and coffee shop premises in the short to medium term, as the Urban Redevelopment Authority continues to undertake large-scale redevelopment plans in many regions across Singapore.
Topwin submits that coordinated effects will not arise as a result of the Proposed Transaction, because:
- both relevant markets will remain extremely competitive following the Proposed Transaction and the presence of a multitude and range of existing competitors of varying scales of operations, within each of the 500 metre and one kilometre radius catchment areas, means that it would not be possible for the merged entity to arrive at an alignment or coordination of its behaviour with other competitors. Any prospect of collusion is untenable or unsustainable;
- individual consumers can switch easily between various choices of cooked food providers in food courts, coffee shops and hawker centre available to them. Upon contract expiration, third party food vendors can also switch easily to a multitude of other food court and coffee shop operators within each of the catchment areas; and
- barriers to entry and expansion in the relevant markets are low. Any coordinated behaviours may be easily disruptive by an opportunistic new entrant.