Diageo, currently the world’s largest Scotch whisky distiller, has confirmed that it has offered to sell most of its Whyte & Mackay distilleries in order to appease competition concerns.
The company, who produces whiskey brands such as: Johnny Walker, J&B, Buchanan's and Bushmills whiskies, acquired Whyte & Mackay by taking over India’s United Spirits. Both parties are major suppliers of bottled blended whiskey to retailers, but Whyte & Mackay produces a significant amount of own-label blended whiskey.
By acquiring United Spirits, Diageo increased its share of the whiskey market by approximately 40 per cent. This led the Office of Fair Trading (OFT) to express significant concerns that the merger may cause the prices of bottled blended whiskey to increase in the UK.
The merger also raised concerns over market competition. After an investigation, the OFT discovered that there was substantial competition between Bell’s Whiskey and Whyte & Mackay's own-label and branded blended whisky, both these companies are now owned by Diageo.
Consumer data was analysed, alongside economic modelling and internal documents, and this suggested that the merger may lead to a considerable lessening of competition in the supply of blended whiskey to retailers.
Chris Walters, chief economist at OFT and the decision maker in this case, said: “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.”
In its investigation, the OFT had to consider if other manufactures of blended whiskey were able to compete with the merged business. Evidence quickly emerged that other manufacturers did not have the capacity needed to offset the loss of competition that would be the likely result of the merger.
Mr Walters added: “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.”
Until a decision has been reached by the OFT the proposal will not be be referred to the Competition Commission.