Eastman Kodak Company and ColourCare Limited: A report on the proposed merger

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On 16 August 2001 the Secretary of State for Trade and Industry referred to the Competition Commission (CC) for investigation and report under the merger provisions of the Fair Trading Act 1973 (the Act) the proposed acquisition of certain assets of ColourCare Limited (ColourCare) by Kodak Processing Companies Limited (KPCL). Our terms of reference are at Appendix 1.1. We were required to report by 26 November 2001.

KPCL is a subsidiary of Kodak Limited (Kodak) and, ultimately, of the US-based Eastman Kodak Company (Eastman). It was formed in 1991 to look after Kodak's photo-processing interests in the UK. It manages seven laboratories, located throughout Great Britain. Its core activity is the provision of wholesale photoprocessing services to retailers, but it also has a mail-order business, selling direct to the public.

ColourCare is a UK company which also provides photoprocessing for retailers through wholesale laboratories. It has a network of seven sites in Great Britain and an eighth in Northern Ireland.

The proposed transaction will involve KPCL acquiring all of ColourCare's wholesale processing operations (mainly its network of laboratories and their associated equipment). ColourCare employees involved in these activities will transfer to KPCL on their current terms and conditions. ColourCare's distribution operation, which collects films from shops and delivers prints, will remain with its current owners, changing its name to PrintMovers. It will provide distribution services to KPCL and to other customers.

We began our inquiry by analysing the operations of KPCL and ColourCare and concluded that the part of their businesses with the potential to give rise to competition concerns was their core activity: the provision of wholesale photo processing services to retailers in the UK.

We then proceeded to examine photoprocessing in Great Britain in detail and concluded that the relevant economic market for our inquiry was the provision of overnight, next-day or longer developing and printing services supplied partly by wholesale processors-of which KPCL and ColourCare were by far the largest-and partly by autonomous retailers (ie those with no controlling ownership links with wholesale processors) using mini labs-machines, about the size of a large photocopier, which allow shop staff to process films on the premises. Taken together, KPCL and ColourCare accounted for about half of this market.
1.7. We then went on to consider the potential for public interest concerns that could result from the significant share of this market that KPCL would enjoy should the proposed acquisition go ahead, and identified a number of areas that merited further consideration.

[ Details omitted. See note on page iv. ]

We concluded that the proposed acquisition may not be expected to operate against the public interest because:

(a) a significant share of the retailer customer base for wholesale photoprocessing is controlled by large national chains with considerable buyer power, and we found no real concerns that anti-competitive practices would be likely to come into existence or be exacerbated by the proposed merger;

(b) there is evidence of price sensitivity by the ultimate customers of the photoprocessing services which KPCL supplies to retailers and a ready availability of alternative and competitively priced retail services from mini labs, mail-order providers and tied stores;

(c) many retailers can easily shift more of their photoprocessing to mini labs or to regional wholesalers, should KPCL seek to exploit the market position which the proposed acquisition would give it;

(d) there is a likelihood of continued competition, at least at local and regional level, with other providers of wholesalers photoprocessing;

(e) there is a lack of any expectation that the quality of service to retailer customers will be reduced, and the likelihood that technological advances will be accelerated, albeit modestly; and

(f) [ Details omitted. See note on page iv. ].

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