The Commerce Commission today released a statement saying it had declined Reckitt Benckiser’s application to merge as it felt this move would substantially lessen competition in the supply of personal lubricants to New Zealand supermarkets and pharmacies.
Chairman Dr Mark Berry said that although the merger had been approved in other countries, New Zealand’s market was unique due to the limited number of suppliers to main retailers. Durex and K-Y are the leading personal lubricant brands in New Zealand and enjoy strong customer loyalty.
In March 2014, Reckitt Benckiser bought the global rights to the K-Y brand for an undisclosed sum, commonly thought to be around $400 million. K-Y’s employees and manufacturing assets stayed with Johnson & Johnson as only the brand and trading relationships were acquired.
Bloomberg Business then reported that in 2013, K-Y generated more than $100 million in sales across 50 countries. Over the past two years, Reckitt Benckiser CEO Rakesh Kapoor has grown the UK-based company’s consumer-health sales through acquisitions such as Nurofen painkillers and Scholl footcare products.
In New Zealand, Reckitt Benckiser also offers a wide variety of brands such as Bonjela, Harpic, Mortein, Finish and Air Wick.
“Together, Durex and K-Y account for the vast bulk of supermarket and pharmacy sales,” Berry says. “While Reckitt Benckiser submitted that the two brands appeal to different customers, Durex and K-Y are each other’s closest rivals across the full product range and competition between them is the main constraint on wholesale prices.”
He said the Commerce Commission was not convinced that other personal lubricant brands stocked in supermarkets or pharmacies, such as Ansell, Sylk or FlowMotion, would be able to replace the competition lost between Durex and K-Y.
“Nor are we satisfied that supermarkets, in particular, have the incentive to support the expansion of an existing supplier or take action if the merged brands raised prices, as the personal lubricant category is small and does not drive foot-traffic through the supermarkets.”
“In our view, we could not exclude the real chance that as a result of this merger Durex and K-Y’s wholesale prices would increase.”
The commission was not concerned about competition in the adult and online retail market, where a greater variety of lubricant brands are available to consumers.
Reckitt Benckiser supplied a statement saying it had received and accepted the decision of the New Zealand Commerce Commission not to permit its acquisition of the K-Y brand in New Zealand.
“RB will continue to focus on providing high quality products and innovations to consumers under the K-Y brand in other countries. In New Zealand, RBNZ will continue to offer high quality Durex brand products.”