News / GXO claims Wincanton takeover will not hurt UK food retailers

The world’s largest pure-play contract logistics operator (PPCLO), GXO, has argued that its intended acquisition of UK competitor Wincanton won’t lead to a substantial lessening of competition for domestic grocery and non-grocery retailers.

GXO’s agreed £960m takeover of Wincanton was held up by the UK’s Competition and Markets Authority (CMA), which said it feared the move would “reduce competition in the supply of mainstream contract logistics services in the UK”, and subsequently ordered a second-phase investigation.

In a 73-page document submitted to the CMA last week, kicking off the Phase 2 process, GXO argued: “Non-grocery retail customers, regardless of their size and whether they have omnichannel (including ecommerce) operations, will continue to have a wide choice of 3PLs which can effectively meet their needs.

“There have been multiple recent instances of 3PLs (in addition to DHL) successfully winning significant opportunities with these customers in direct competition with the parties.

“Large non-grocery retail customers will also have a ready option to insource some or all of their CLS [contract logistics solutions] requirements, were the merged entity to seek to push through medium- to long-term price increases after the transaction,” it claimed.

The document then focuses on the food retail sector, which GXO admits is a legitimate area of concern for competition regulators, given the respective current market share of GXO and its chief competitor, DHL Supply Chain.

“The size of these customers, in terms of both contract size and total CLS expenditure, sets them apart from others; and at present, the fact is that the parties [in the takeover deal] and DHL account for most of the major outsourced warehouse contracts, although other 3PLs (eg, Culina Group, XPO, and other smaller 3PLs such as Lenhams) are also involved in grocery CLS,” the submission says.

However, it argues that the takeover would not lead to any substantial lessening of competition, on the basis that food retailers of that scale “can and do insource all or some of their CLS requirements”, and that the relatively low margins earned by CLOs – both GXO and its peers – indicated a market in which competition was already healthy.

“The parties recognise that grocery retail operations present specific challenges and that the grocers’ current procurement strategies have limited their 3PL competitor set”, it says.

“However, grocers’ CLS options are not limited to the current 3PLs servicing their contracts.  If this were the case, it would be reasonable to expect these 3PLs to achieve higher margins on grocery retail contracts, compared to those customers with access to a wider range of competitive alternatives.

“In reality, however, the opposite is true: the combination of the threat of insourcing; the potential for grocers to sponsor other 3PL entry or (more likely) expansion; and grocers’ significant buyer power together act as a powerful check on the current competitor set,” it says.

The Phase 2 process has a statutory deadline of 30 April.