Manufacturing & Supply Chain

The Office of Fair Trading (OFT) is considering an offer from Diageo to sell most of its Whyte & Mackay business to address competition concerns regarding bottled blended Scotch whisky, arising from its completed acquisition of United Spirits. Diageo and United Spirits are both suppliers of spirits in the UK and across the world. In the UK, United Spirits’ subsidiary, Whyte & Mackay, is primarily active in the supply of whisky but also owns and distributes other spirits, including vodka.

The parties are major suppliers of bottled blended whisky to retailers with Whyte & Mackay also being an important supplier of own-label blended whisky. A number of retailers expressed concerns to the OFT about possible price rises for bottled blended whisky sold in the UK as a result of the merger.

The OFT’s investigation found that there is substantial competition in the retail sector between Bell’s whisky, a Diageo label, and Whyte & Mackay’s own-label and branded blended whisky. After analysing evidence including data on consumer switching between brands, economic modelling and internal documents, the OFT found the merger may lead to a substantial lessening of competition in the supply of blended whisky to retailers.

The OFT considered to what extent other manufacturers of blended whisky were capable of competing with the merged business. The evidence showed that other manufacturers did not have, and could not quickly reach, sufficient capacity to offset the loss of competition likely to result from the merger.

Chris Walters, OFT chief economist and decision maker in this case, says: “These companies are two of the leading suppliers of blended bottled whisky in the UK, especially to supermarkets and other large retailers. Our investigation considered a wide range of evidence and we concluded that the likely loss of competition could give rise to higher prices for retailers, and ultimately consumers.”

He adds: “We are now considering Diageo’s offer to sell the bulk of the Whyte & Mackay business with the exception of two malt distilleries, to address our concerns. While the undertakings in lieu are being considered, the OFT’s duty to refer the merger to the Competition Commission is suspended.”