Frozen Pizza Merger May Take Too Big A Slice of UK Market

The competition watchdog is sniffing around frozen pizzas after a deal that will hand a German producer a 43 per cent share of the British market.

The Office of Fair Trading (OFT) is investigating the purchase by Dr Oetker of Schwan’s pizza business in December. It has been prompted by concerns that the deal would increase the price of a product that has become a recession staple for consumers.

Retailers fear that Dr Oetker acquiring the Chicago Town brand will reduce the scope for running promotional discounts, while rival food producers are concerned that the sale will give Dr Oetker, which is Europe’s biggest pizza maker, a dominant position. Schwan, which was the No 2 frozen pizza maker in Britain, sold much of its European business to concentrate on its North American operations.

Its factory in Leyland, Lancashire, will be taken on by Dr Oetker, which has expanded its presence in Britain rapidly. In 2005 it bought Birds Eye’s frozen pizza business and quickly folded the Gino Ginelli and Igloo brands into its Ristorante brands. Competitors have argued that this had reduced consumer choice.

The family-owned company, which also makes Onken yoghurt, has already started using the Dr Oetker logo on Chicago Town packaging, despite an undertaking given to the OFT that it would keep the companies separate during the investigation.

The combined Dr Oetker and Schwans business will have a market share of 43 per cent — above the 40 per cent threshold usually taken as a dominant position. The combined company would have a 35 per cent share of the branded frozen pizza market, according to figures from AC Nielsen for the 12 weeks to February 21, overtaking Northern Foods, which makes Goodfellas pizzas.

The frozen pizza market grew 7 per cent last year as consumers reverted to frozen foods during the recession — after years of declining sales. The market is worth £375 million, but is highly promotional.About 48 per cent of frozen pizzas were sold on promotion, figures for the four months to January 31 show — a rise of four percentage points on last year, as consumers and retailers focus on cheaper products. The increase in promotional activity was driven by Dr Oetker. Although it has only about one eighth of the market without Schwan, it increased the proportion of pizzas sold on promotion from 46 per cent to 74 per cent.

Retailers fear that the enlarged Dr Oetker will be able to use its dominant position to scale back promotional activity, forcing them to reduce margins or raise retail prices.

A spokesman for the company said: “Dr Oetker UK is aware of the investigation, which is only to be expected on a transaction of this size. We are co-operating with all parties concerned.”

Frozen food had suffered from declining sales as chilled foods and ready-meals became more popular. Unilever sold Birds Eye in 2006 to private equity, while the company that produces Findus products in Britain went into administration this year.

However, food inflation and customers trading down to cheaper and more convenient foods during the recession have boosted frozen food sales. Total sales rose 6.7 per cent last year, with a 0.8 per cent increase in volumes.


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