The opinion of the court was delivered by: DITTER
Alleging that a proposed merger of two frozen dessert pie producers will substantially lessen competition, the Anti-Trust Division of the Department of Justice has petitioned this court for a preliminary and permanent injunction. Jurisdiction is founded upon 15 U.S.C. § 25.
The Government contends that the proposed acquisition of Chef Pierre, Inc. by Consolidated Foods Corporation violates section 7 of the Clayton Act. After an eight day trial on the merits, I have decided that the merger does not offend the provisions of section 7, and that all injunctive relief must therefore be refused. Findings of fact and conclusions of law are stated herein. The analysis and discussion in support of this decision will be expressed at length in an opinion to follow.
1. Consolidated Foods Corporation ("Consolidated Foods") is a Maryland corporation with its principal executive offices in Chicago, Illinois. Consolidated Foods is a diversified company engaged in the businesses of frozen and processed foods, soft drinks and confections, food services, home products and services, commercial products and services and apparel. (Stipulation No. 1, par. 5.) Consolidated is one of the nation's largest industrial corporations (ranked 78th in Fortune's 1977 Directory of the Five Hundred Largest U.S. Industrial Corporations) with total sales of approximately $ 2.75 billion for its fiscal year ended June 30, 1976 and $ 2.89 billion for its fiscal year ended June 30, 1977. (Consolidated Answer, Par. 4 and GX 17.)
2. One of the divisions of Consolidated Foods is the Kitchens of Sara Lee ("Sara Lee"). Sara Lee manufactures and sells approximately 25 varieties of frozen baked goods and dessert products including rolls, cakes, cheese cakes, brownies, pound cake, coffee cakes, cup cakes, breakfast Danish, frozen dessert pies, and international desserts. Frozen dessert pies produced by Sara Lee are unbaked. (Stipulation No. 1, par. 6.)
3. Sara Lee's sales of frozen dessert pies were approximately as follows:
Virtually all of these sales of frozen desserts were to retail customers, as follows:
(Stipulation No. 1, par. 6.)
4. Sara Lee does not produce any pies for sale to institutional (sometimes also referred to as "food service") customers. In its fiscal year ended June 30, 1976, Sara Lee sold approximately $ 116,000 worth of frozen dessert pies produced by it to institutional customers and in its fiscal year ended June 30, 1977, it sold approximately $ 26,900 worth of frozen dessert pies produced by it to institutional customers, such sales, for the most part, representing sales of retail frozen dessert pie seconds to the State of Texas. (Stipulation No. 1, par. 6.)
6. Sara Lee pies are produced from bulk fruit frozen in a sugar syrup. In the pie making process the fruit is thawed, the natural juices are cooked and thickened with other ingredients and subsequently recombined with the fruit to make the pie filling. (Stipulation No. 1, par. 6.)
7. Sara Lee currently offers for sale only six varieties of retail frozen dessert pies, apple, Dutch apple, peach, cherry, blueberry, and pumpkin, all in a single size (Tr. 7-149 to 7-149a).
8. Sara Lee has a full line of frozen dessert product sales such as cakes and pastries, all of which go through the same distribution system as frozen dessert pies. (Tr. 3-168); (Tr. 5-71 to 72).
9. Sara Lee has the following market shares for the frozen baked goods and dessert products indicated:
10. Consolidated Foods distributes food products and related grocery products to volume feeding operations such as restaurants, hotels, industrial cafeterias, schools and hospitals throughout the United States. (Stipulation No. 1, par. 7.)
11. Consolidated distributes food and related products including frozen dessert pies, to the food service industry through its Monarch, Pearce-Young-Angel, Snow Queen, Harrison House, and Booth Fisheries operations. (GX 17; Tr. 8-94 to 95; Tr. 6-41 to 42; Tr. 5-137 to 138). Monarch/Pearce-Young-Angel (Monarch/PYA) is the nation's third largest distributor in the institutional food service industry (GX 17 Consolidated 1977 Annual report, Page 4; Stip. No. 1, Par. 7).
12. Monarch/PYA or Harrison House engage in food service distribution in Massachusetts; southern New Hampshire; Rhode Island; Connecticut; southern New York; southern New Jersey; Delaware; eastern, southern and western Pennsylvania; Maryland; Washington, D.C.; Virginia; North Carolina; South Carolina; Greater Atlanta Georgia area; northern Florida; California; Nevada; Armadello, Texas; Illinois; western Indiana; southern Wisconsin; Iowa; and Minneapolis, Minnesota. (Tr. 8-94 to 97).
13. Chef Pierre, Inc. ("Chef Pierre") is a corporation organized and existing under the laws of the State of Delaware with its principal place of business in Traverse City, Michigan. Chef Pierre produces frozen dessert pies at facilities located in Traverse City, Michigan, for sale throughout the United States. Chef Pierre is engaged in the production and sale of both retail and institutional frozen dessert pies. (Stipulation No. 1, par. 9.)
14. Chef Pierre's sales of frozen dessert pies were approximately as follows for the calendar years indicated:
Most of Chef Pierre's sales of frozen dessert pies were institutional sales, as indicated below:
(Stipulation No. 1, par. 9.)
16. The Chef Pierre "Hi-pie" is packaged in a clear plastic wrapping rather than in a box. Frozen dessert pies composed of IQF fruit are more expensive than frozen dessert pies utilizing bulk fruit. Chef Pierre also produces boxed pies utilizing bulk fruit. (Stipulation No. 1, par. 9.)
17. Chef Pierre pies are distributed throughout the United States. Approximately 60% Of Chef Pierre's sales of institutional frozen dessert pies are sold under private labels rather than the "Chef Pierre" label. (Stipulation No. 1, par. 9.)
18. Chef Pierre produces more than 40 varieties of frozen dessert pies (Tr. 8-13), while Sara Lee produces only six varieties.
19. On January 30, 1978, the respective Boards of Directors of Consolidated Foods and Chef Pierre approved a merger agreement pursuant to which Chef Pierre is to be merged into Consolidated Foods. The total value of the transaction is approximately $ 34 million. (Stipulation No. 1, par. 4.)
20. The retail pie business and the institutional pie business are recognized by the food industry as two distinct businesses. (Tr. 2-15; Tr. 7-181; Tr. 8-21 to 8-22.)
21. It is stipulated that the manufacture and sale of retail frozen dessert pies throughout the United States is a relevant line of commerce for purposes of this case. (Stipulation No. 2.)
22. The customers for retail and institutional frozen dessert pies are different; methods of marketing and distribution are different; advertising, packaging and the size and other characteristics of the pies are different, and the price is different. Chef Pierre reports retail and institutional pie sales separately in its Annual Reports and Form 10-K filed with the Securities and Exchange Commission. (Stipulation No. 1, par. 14.) Sara Lee does not produce institutional pies. (Stipulation No. 1, par. 6.)
23. There is little if any substitution between retail frozen dessert pies and institutional dessert pies. (Tr. 8-128.)
24. Retail dessert pies generally are sold through food stores to consumers for home consumption. Most retail frozen dessert pies are eight inches in diameter. (The "Chef Pierre Gourmet Hi-Pie" is nine inches in diameter.) Advertising for retail dessert pies is aimed directly at the consumer. Packaging for retail dessert pies normally is more expensive than for institutional pies because the packaging must be able to attract the consumer's attention. Retail pies normally are more expensive than institutional pies particularly when compared on a price per ounce basis. Brand names are more important in the sale of retail frozen dessert pies than in the sale of institutional frozen dessert pies. (Stipulation No. 1, par. 15.)
25. In addition to frozen pies, many retail stores also sell fresh pies. In some instances such fresh pies are delivered to the store already baked. In other instances the pies are "baked-off" at the store, utilizing frozen pies. (Stipulation No. 1, par. 15.)
26. Institutional frozen dessert pies are sold through institutional food distributors to restaurants, hospitals, schools and other institutions which in turn bake or thaw the pies and sell them to customers by the slice for consumption on the premises. Institutional frozen pies usually are ten inches in diameter, and they normally are packaged in plain boxes.
28. Fresh baked dessert pies are sold on consignment and title does not pass with delivery. Fresh baked dessert pies are sold with a return privilege for pies unsold at the end of their shelf life; frozen pies are not sold with such a return privilege. Fresh baked dessert pies are delivered on a daily basis while frozen dessert pies are delivered on less frequent intervals. Frozen dessert pies are sold in the frozen food cabinet of the grocery store. Fresh baked dessert pies are not purchased by the frozen food buyer of the supermarket chain. Fresh baked dessert pies are delivered by pie producers to individual retail grocery stores and food service accounts.
29. Fresh institutional dessert pies are delivered daily to the restaurant's door already baked and ready to serve. A number of pie companies, including Mrs. Smith's, Fasano, Best, Vern's and others sell both fresh and frozen institutional dessert pies. (Tr. 8-85 to 8-86, 8-102 to 8-103; Tr. 5-146 to 5-147; Tr. 6-103; Tr. 7-119 to 7-120; Tr. 8-7, 8-13, 8-22, 8-42; Tr. 8-64.) Fresh pies compete directly and intensely with frozen pies in the institutional market.
30. Although the institutional dessert pie market is a separate economic entity, this line of commerce includes both fresh and frozen pies. There is no separate institutional frozen dessert pie market.
31. Selling Areas Marketing, Inc. (SAMI) collects from certain food distributors figures which show case-movements from their warehouses. SAMI, through extrapolation and projection using constants and formulas it has developed, publishes data to its subscribers. When found to be inaccurate, SAMI reports are rechecked and revised. It is accepted in the food industry that SAMI reports reflect market shares of retail frozen dessert pies. (GX 13, p. 2; Tr. 2-89 to 90; Tr. 3-158 to 161; Tr. 3-24; Tr. 5-16 to 21; Tr. 6-18 to 10.)
32. Frozen pie producers subscribe to market share data published by SAMI for the sale of retail frozen dessert pies. (Tr. 3-61, Tr. 2-89 to 90; Tr. 6-20; Tr. 8-56).
33. Consolidated subscribes to SAMI reports for frozen sweet goods at an annual cost of $ 150,000. (Tr. 7-71.)
34. Chef considers SAMI an accurate reflection of market share percentages in the retail frozen dessert pie market. (GX 13, p. 2.)
35. Certain producers of retail frozen dessert pies have considered SAMI reports on market shares to assist in deciding whether to enter another geographic market, (Tr. 2-89; Tr. 6-53 to 54) or to develop and market a new product. (Tr. 5-16 to 21.)
37. Certain producers of frozen dessert pies rely on reports on frozen dessert pies issued by SAMI and use them in their day-to-day business. (Tr. 2-89 to 90; Tr. 3-158 to 161, Tr. 4-63 to 64.)
38. Certain producers of frozen dessert pies may rely on reports on frozen dessert pies issued by SAMI to reflect probable competitors' sales, market trends, competitors' promotional activities, and fluctuations in different types and sizes of frozen dessert pies in SAMI's regional marketing areas. (Tr. 6-18 to 19; Tr. 5-18; Tr. 2-89 to 90.)
39. SAMI reports on 39 regional markets in the United States. The reports are issued every four weeks, 13 times a year. (Tr. 3-51.)
40. SAMI is concerned only with retail data. (Tr. 3-52.)
41. Since SAMI data is based on "warehouse withdrawals," i. e., food withdrawn from wholesale warehouses and sent to food stores, a manufacturers' sale of frozen pies directly to a retail store is not included in the SAMI data base. (Tr. 3-66.)
42. Certain chains that operate warehouses do not report to SAMI. One such non-participating operator is Safeway, a large supermarket chain. (Tr. 3-66.)
43. A "private label" is the brand name of a distributor or group of distributors rather than that of the manufacturer. A private brand pie is boxed with the distributor's label on it, and its manufacturer is not identified. Two or more manufacturers may be authorized to package under the same private label, and when they do, each competes for sales to those distributors who use that private label.
44. Regardless of their aggregate, SAMI does not report private label sales in any geographic area where less than three private brands are sold. (Tr. 3-67 to 3-69.)
45. With a seasonal product, such as pumpkin pie, SAMI's report for a four week period within the product's season will be disproportionately high as contrasted to yearly sales for that product. (Tr. 3-85 to 3-86.)
46. Not all the food service operators in a given SAMI market area report to SAMI and SAMI's 39 market areas do not include all the counties in the United States. SAMI knows that its participating food operators in a given market area "do approximately x percent" of that market. The figures for these operators are therefore "blown-up" to cover the total market. Thus calculated, the 39 markets are added together. Each of the remaining counties which are not included in any SAMI market area are assigned "some value," and these are added as well. The resulting figure is the total sales projection for the entire United States. (Tr. 3-75 to 3-77.)
47. Therefore, the SAMI market figures for the total United States are, in essence, a projection on a projection.
48. Although the existence of regional, geographic submarkets within the United States is a contested matter, the parties have stipulated that the United States as a whole is a relevant geographical market in which to assess the effects of the merger of Chef Pierre and Consolidated Foods. Frozen pies can be and are sold throughout the United States from a single plant. Consequently, producers of frozen pies are able to compete and do compete for customers throughout the United States. Frozen pie companies including Mrs. Smith's, Morton, Banquet, Pet, and Lloyd J. Harriss, as well as Sara Lee and Chef Pierre compete on a nationwide basis. In addition, regional frozen pie producers overlap with other regional frozen pie producers. (Stipulation No. 1, par. 18; Tr. 8-125 to 8-131, 8-134 to 8-135.)
50. Buyers and potential buyers of retail frozen dessert pies and buyers and potential buyers of institutional frozen dessert pies are located throughout the United States. (Stipulation No. 1, par. 18.) Institutional food distributors also are located throughout the United States. (Tr. 4-46.)
51. In 1977, total sales of retail frozen dessert pies were $ 144,546,000. Sales of retail frozen dessert pies by individual producers in 1977 were:
Chef's and Consolidated's dollar sales of retail frozen dessert pies in 1977 were 7 percent and 3.1 percent, respectively, of the retail frozen dessert pie market. If the merger is consummated, the combined market share of Consolidated and Chef would be 10.1 percent of the retail frozen dessert pie market and Consolidated would be the third largest producer of retail frozen dessert pies in the United States.
52. According to the Government's exhibits and the stipulations of the parties, total 1977 sales of institutional frozen dessert pies in the United States were $ 65,860,000. This figure represents the sum of the sales by the following individual producers in 1977:
But see the estimates in Finding of Fact No. 69, which differ substantially from this total.
53. Sara Lee frozen pie sales have declined from $ 7,101,100 in fiscal 1973-74 to $ 4,525,100 in fiscal 1976-77, a 36 percent decline in dollar sales. During the same period, total retail sales of all companies' frozen dessert pies increased by 45 percent. During this same period, Sara Lee's unit sales have declined 45 percent, from 1,179,300 cases in 1973-74 to 649,600 cases in 1976-77. (Stipulation No. 1, par. 6; Tr. 7-153; Tr. 9-4, 9-6.)
54. Sara Lee is not one of the leading sellers of retail frozen dessert pies. Sara Lee's currently estimated share of all retail frozen dessert pies sold is 1.6 percent (GX 11); in Sara Lee's fiscal 1977 retail frozen dessert pie sales of $ 4,498,200 (Stipulation No. 1, par. 6) were less than the 1977 retail frozen pie sales of Mrs. Smith's (GX 48), ITT (Morton), Ward Foods (Johnston and Simple Simon), Lloyd J. Harriss, RCA (Banquet), Pet Inc. (Pet-Ritz), Chef Pierre, Fasano, Quality Baking Co. (Mountain Top), (Stipulation No. 3) and Edwards (Tr. 2-174.) (The apparent discrepancy between the estimate of 1.6 percent and the total sales of $ 4,498,000 may be explained on the basis that the 1.6 percent is an Estimate of Sara Lee's Current position as of December 28, 1977. The total sales of $ 4,498,000 were for the fiscal year ending June 30, 1977. This total when compared to sales of other frozen dessert pie companies for the period ending December 31, 1977, shows a 3.1 percent share for Sara Lee.)
55. Chef Pierre does not regard Sara Lee as a significant competitor. Thus, Chef Pierre has not priced or promoted its pies against Sara Lee pies. (Tr. 8-27, 8-29.) Similarly, Edwards Pie Co. did not name Sara Lee as a major competitor in the retail frozen dessert pie business (GX 6, p. 4). Neither Mrs. Smith's nor Heinz view Sara Lee as a significant competitor (Tr. 5-60; Tr. 3-32.) No witness testified that the merger would reduce competition between Sara Lee and Chef Pierre. (Tr. 9-7, 9-8, 9-11.)
56. Sara Lee has been forced to discontinue a number of varieties of retail frozen dessert pies due to insufficient sales and poor distribution (Tr. 7-150.) As stated above, Sara Lee now sells only six varieties of retail frozen dessert pies in one size (see finding no. 7, Supra.) This may be contrasted, for example, with Mrs. Smith's which produces ...