Proposed Acquisition by NTUC Enterprise Co-Operative Limited of Kopitiam Investment Pte Ltd

Reference:

CCCS 400/008/18

Notifying Party:

Notifying Date:

28 September 2018

Summary of transaction:

(i) the names of the merger parties;

1. NTUC Enterprise Co-operative Limited (“NE”)
2. Kopitiam Investment Pte Ltd (“Kopitiam”)

(ii) a description of the transaction;

The notification relates to the proposed acquisition by NE of 100 per cent. of the equity interests in Kopitiam and its subsidiaries (the “Proposed Transaction”). Prior to the completion of the Proposed Transaction, Kopitiam will acquire all the outstanding shares in iMetrics Pte Ltd (“iMetrics”).

Economic and strategic rationale of the Proposed Transaction

The Proposed Transaction would allow NE to create a scaled and efficient business while simultaneously delivering high social impact.

In line with NE’s and Foodfare’s social mission of making cooked food affordable and accessible to all Singaporeans (“Social Mission”), the Proposed Transaction will enable NE to roll out Foodfare’s moderate pricing strategy and healthy eating concept (i.e. where Foodfare tenants are required to offer at least one healthier choice in its menu) to the Kopitiam-operated stores, and deliver the Social Mission across more touch points in Singapore.

Through the Proposed Transaction, NE expects to achieve significant cost reductions through initiatives, such as joint procurement, which enable economies of scale to be reaped. The cost savings generated from the Proposed Transaction would improve NE’s ability to combat rising costs of living to deliver on quality and affordably-priced cooked food more efficiently and on a much larger scale in Singapore.

Further, with greater scale, NE will be better-placed to integrate the best capabilities from both Foodfare and Kopitiam and optimise the mix of food offerings across all outlets to present a better value proposition when bidding for new sites.

NE also submits that the Proposed Transaction would allow it to realise benefits from four other areas of synergies. First, the merged entity will be better placed to tap on an expanded network of managing agents to sustain higher occupancy rate of stalls. Secondly, NE will be able to acquire an in-house point-of-sales (“POS”) system through iMetrics to replace NE’s existing costly practice of renting POS systems from third-party suppliers. Third, the integration of NE’s database with Kopitiam’s anonymised database will provide more robust analytical insights for NE to provide more personalised recommendations to consumers. Fourth, the current spare capacity at Kopitiam’s dim sum factory can be more efficiently utilised by supplying the products to NE’s Heavenly Wang and Wang cafes as additional distribution channels,

(iii) a description of the business activities of the merger parties worldwide and in Singapore;

NE

NE is the holding cooperative for the Group of NTUC Social Enterprises (“SEs”). NTUC Foodfare Co-operative Ltd (“Foodfare”) was founded in 1995 as one of the SEs with a mission to provide cooked food that is of good quality, safe and value-for-money. Foodfare manages food retail outlets in various formats including food courts, coffee shops, hawker centres, cafes and food stalls, as well as kitchen spaces in providing food services to nursing homes and other government organisations and institutions. Further, Foodfare has also developed extensive food manufacturing capabilities at its central kitchen facility, which is supported by a dedicated research and development team, nutritionists and food scientists, to create innovative food products such as ready-to-eat meals and low-GI^[1] products.

NE does not operate any food and beverage retail business outside of Singapore.

Kopitiam

Kopitiam does not have any business activities outside of Singapore. Kopitiam manages the daily operations of Kopitiam eateries, and also leases stalls at its coffee shops, hawker centres and food courts (“Street Stalls”) to food vendors. Kopitiam also directly operates all drinks, fruits and desserts stalls within eateries that it manages.

Further, Kopitiam’s subsidiaries which are involved in the Proposed Transaction, undertake:

1. the management of Kopitiam’s food court, hawker centre and coffee shop operations;

2. cleaning services;

3. property investment holding;

4. wholesale trading and import;

5. the retail of lottery products;

6. the manufacture and wholesale of desserts and beverages; and

7. the manufacture and wholesale of dim sum and other bakery products.

iMetrics provides IT services to businesses, including Kopitiam, by providing point of sales systems, office systems, ordering systems, queue systems, and stored value card systems. iMetrics did not conduct any overseas business activities in the financial year ended 31 December 2017.

(iv) a description of the overlapping goods or services, including brand names;

The Parties primarily overlap in the supply of:

1. the sale of cooked food to individual consumers in Quick-service Eateries, which are eateries, including coffee shops, food courts and hawker centres, where individual consumers are able to purchase cooked food that is freshly prepared and processed speedily for immediate consumption in a casual, quick, communal and self-service dining environment, and where prices are generally lower than full-service dining establishments; and

2. the rental of stalls to food vendors located within Street Stall premises.

(collectively referred to as the “Overlapping Products”).

NTUC runs 14 food courts, 10 coffee shops, nine hawker centres, 32 cafes (comprising Wang Café and Heavenly Wang), one cafeteria (Vanda Terrace) and one factory located in Singapore. Kopitiam operates 56 food courts, 21 coffee shops, three hawker centres and two central kitchens in Singapore.

NTUC serves 220,000 daily meals across its food courts, hawker centres and coffee shops. Kopitiam serves about 350,000 meals daily.

NTUC estimates that it would have a combined total of 1,618 stalls^[2] with Kopitiam, in Street Stall premises which they lease to food vendors or operate themselves. According to NTUC, this amounts to only 7.9 percent of the estimated 20,566 Street Stalls in Singapore in 2017.

(v) a description of substitute goods or services;

Notwithstanding the multitude of competing alternatives within the category of Quick-service Eateries, from the demand-side perspective, the closest substitutes for cooked food in Quick-service Eateries are ready-to-serve meals that are sold to end consumers for immediate dine-in consumption in other hospitality outlets, restaurants, and eateries, as well as delivery and takeaway options, vending machines, catered food and home cooked meals. The substitutes for a food vendor to renting stalls in Street Stall premises would be to offer food for sale through establishing a hospitality outlet, restaurant, café or casual eatery, or through vending machines, catering or other delivery methods.

Notwithstanding the multitude of competing alternatives within the category of Quick-service Eateries, from the supply perspective, the closest substitutes for cooked food in Quick-service Eateries are food vendors in other hospitality outlets, restaurants, eateries, catering, vending machines or other delivery methods, who can move into setting up their own Quick-service Eateries, operating Street Stall premises, or leasing individual stalls from Street Stall operators. The supply-side substitutes for the rental of stalls in Street Stall premises would be other food outlets, operators or landlords leasing space to food vendors for the sale of cooked food.

(vi) the applicant’s views on:

1. definition of the relevant market(s);

   NE submits that the relevant markets are:

   1. isochrones of at least 500 metre radii for the sale of cooked food in Quick-service Eateries to individual consumers; and

   2. the Singapore-wide rental of stalls located within Street Stall premises.
      
      

2. the way in which competition functions in this market;

   NE submits that the market is highly competitive, in view of the multitude of Quick-service Eateries that consumers can rely on in the immediate vicinity of Foodfare and Kopitiam outlets. There are also many Street Stall operators that possess strong competitive capabilities and have been seen to expand their operations aggressively in recent years.
   
   NTUC submits that apart from the Street Stall competitors such as Kofu and Food Junction, the competitors to NTUC and Kopitiam for the sale of cooked food include but are not limited to: (i) cafe chains selling toast products such as Yakun, Toast Box Fun Toast, Killiney Kopitiam, Nanyang Old Coffee; (ii) speciality eateries such as Qiji, Crave Nasi Lemak and Tori-Q; as well as (iii) fast food chains such as MacDonald’s, Burger King, 4Fingers and Kentucky Fried Chicken. According to NE, it is because these eateries share the same characteristics of low-pricing, freshly cooked, immediate and ready-to-eat hot meals in a casual quick dining environment without full service,
   
   

3. barriers to entry and countervailing buyer power; and

   Barriers to entry

   NE submits that barriers to entry and expansion are low in both relevant markets, as the requirements to obtain the necessary operating licenses from the Government are not, in NE’s view, unduly restrictive or onerous. Further, as the Urban Redevelopment Authority (“URA”) is undertaking significant development plans in many commercial precincts and housing estates in Singapore, NE expects capacity growth, in particular, as more sites are to be made available for Street Stall operations for leasing in the short to medium term. This will in turn make it easy for new entrants or existing competitors to enter or expand into the relevant markets quickly and on a material scale. In addition, as the food services industry in Singapore continues to undergo a fast growing adoption of technology and innovative practices, this key trend will facilitate the growth and emergence of asset-light business models that require minimal upfront capital expenditure for market entry or expansion.

   Countervailing buyer power

   In relation to the market for the sale of cooked food in Quick-service Eateries, NE submits that consumers virtually face no switching cost as they generally have various choices of providers available to them that are located within walking distance. Further, as the initial choice of which Quick-service Eatery to visit is highly sensitive to factors such as convenience, price, variety and quality of food offering, operators of, and food vendors in, Quick-service Eateries are consistently compelled to deliver value in these respects in order to remain relevant and competitive. Consumers can also easily self-supply by bringing their own meals from home to consume at work or for certain out-of-home purposes.

   In relation to the market for the rental of stalls to food vendors located within Street Stall premises, there is strong contestability for food vendors who are generally indifferent in stall location so long as the rental terms are competitive and there is sufficient consumer traffic. It is accordingly a common practice for vendors to participate in multiple competitive selection processes, and they are at liberty to select the most favourable offer that it successfully secures.
   
   

4. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

NE submits that non-coordinated effects will not arise as a result of the Proposed Transaction for the following reasons:

(a) the merged entity will continue to have low market shares in both relevant markets;

(b) the market is highly competitive, in view of the multitude of alternative and competing suppliers of cooked food in Quick-service Eateries that consumers can rely on in their vicinities, as well as many Street Stall operators that possess strong competitive capabilities and have been seen to expand their operations aggressively in recent years;

(c) countervailing buyer power is high, as consumers virtually face no switching costs since they generally have various choices of cooked food sold in Quick-service Eateries that are available to them within walking distance. There is also strong contestability by Street Stall operators for food vendors who are generally indifferent in stall location so long as the rental terms are competitive and there is sufficient consumer traffic; and

(d) barriers to entry and expansion are low, since it is not unduly restrictive or onerous for new entrants to obtain the necessary operating licenses from the Government. Further, there is expected capacity growth for new entry as the URA undertakes significant development plans in many areas of Singapore, which makes more sites for Street Stall operators available for leasing in the short to medium term.

The characteristics of the relevant markets preclude the possibility of anti-competitive coordinated effects, as:

(a) 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 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;

(b) consumers and third party food vendors (under Foodfare) can switch easily between the various choices of cooked food providers in Quick-service Eateries and Street Stall operators available to them; and

(c) barriers to entry and expansion in the relevant markets are low. Any coordinated behaviours may be easily disrupted by an opportunistic new entrant.

NE submits that the Proposed Transaction would not give rise to vertical effects, as:

(a) NE and Kopitiam do not procure items from each other’s factories, and are also not competitors in such upstream products, as the products are sold to completely different consumer segments;

(b) there are a multitude of small- and medium sized enterprises in Singapore which offer similar services as iMetrics;

(c) there are a multitude of Street Stalls which are not leased out, or operated by NE and Kopitiam. Hence, the Proposed Transaction would not give rise to any vertical effects that would result in any foreclosure effects in the upstream or downstream markets for the leasing of real estate for Street Stall premises; and

(d) the commercial terms of any lease agreement is subject to negotiation on a case-by-case basis. Hence, there is an added degree of countervailing buyer power that allows potential tenants to switch easily to the many alternative landlords or for landlords to switch Street Stall operators.

Consultation:

Interested parties are invited to submit their views on the Proposed Acquisition. If the submission or correspondence contains confidential information, interested parties should also provide CCCS with a non-confidential version of the submission or correspondence.

Comments should reach CCCS no later than 17 October 2018. Please send your comments (titled: Proposed Acquisition by NTUC Enterprise Co-Operative Limited of Kopitiam Investment Pte Ltd) to:

By Post/Courier:

Competition & Consumer Commission of Singapore
45 Maxwell Road
#09-01, The URA Centre
Singapore 069118

Attention: Mr. Jonathan Chan, Assistant Director (Business & Economics Division)

By Email: cccs_feedback@cccs.gov.sg

Supporting Documents:

Interested third parties may request in writing to obtain more information on the transaction.

Please send your request (titled: Proposed Acquisition by NTUC Enterprise Co-Operative Limited of Kopitiam Investment Pte Ltd) to the above contact details.