Cérélia is appealing the decision, but does the CMA have a point?

French bakery giant Cérélia can be forgiven for not having factored the CMA into its takeover of Jus-Rol at the end of 2021.

After all, the category is small in terms of importance to supermarkets, with total sales value of about £120m a year and an average annual spend of just £7.80 per shopper. Plus, Cérélia has manufactured Jus-Rol under contract from previous owner General Mills for years.

Yet the regulator spent almost a year investigating and ruled the deal could lead to higher prices for customers and “worse-quality products” in the ready-to-bake dough category. As a result, it is forcing Cérélia to sell the Jus-Rol brand.

Cérélia will appeal. But is the own-label manufacturer correct in calling the CMA’s conclusions “flawed”, or does the watchdog have a point that the merger would leave shoppers worse off?

Category competition

The heart of the CMA’s decision lies in the worry supermarkets will have less power to pit the biggest own-label manufacturer and the number-one brand in the segment against each other, to get better deals for customers.

Ged Futter, a former supermarket buyer and founder of The Retail Mind consultancy, says the ruling shows the CMA has “no understanding of the UK retail market at all”, where almost all the power resides with the grocers.

“The ultimate impact on the customer is negligible,” argues Futter, who wrote a letter to the CMA in defence of the deal. “What are they protecting customers from?”

Cérélia says the CMA’s 340-page final report suggests the outcome was largely based on “uncorroborated and unreliable concerns raised by a very small number of supermarkets”.

And the group adds the decision doesn’t reflect the “intense competition” faced by contract manufacturers for private label deals offered by the major supermarkets.

A dealmaker source is also critical of the watchdog, arguing the sector needs consolidation to ensure businesses on slim margins make enough to reinvest.

“Currently there is over-capacity and there isn’t enough investment going into innovation,” the source says. “The CMA clearly don’t have a lot on their plate and are trying to justify their existence.”

Jus-Rol had been an unloved brand as part of General Mills, with production being outsourced from the UK to Europe in 2016 when the group closed its Berwick-upon-Tweed factory.

Cérélia, which was making the brand for GM in France, brought jobs back to the UK in 2020 when it built a new factory in Corby for Jus-Rol and own-label production.

“For many a year the category Cérélia operates in was lacking in opportunities for retailer, supplier and consumer,” Futter says. “Under-investment in a category is a sign that retailers have too much power, it means the supplier is just existing, that production facilities are not being updated, and that innovation is not forthcoming

“Cérélia have made an unprecedented investment in this site, so why on earth would they want to dampen growth?

“If a business invests significantly, they want to accelerate growth, they want to create more jobs and more innovation for customers. It is not in their interest to increase prices, reduce quality and remove innovation.”

Jus-Rol Cookie Dough

Cérélia has manufactured Jus-Rol under contract from previous owner General Mills for years

Cérélia believes the outcome denies it the ability to make further investments in “a brand that has lacked relevant support for many years”.

The CMA disagrees and argues in its final report that there are “less anti-competitive ways to increase investment and promotion into the UK dough-to-bake sector”. For example, the body adds, Cérélia could invest in product development for lines supplied to supermarkets, or develop a brand of its own, or Jus-Rol could increase its investment in the brand and its products.

The Corby factory now faces an uncertain future as Cérélia president Guillaume Reveilhac says the decision raised questions “about our ability to continue to serve UK retailers and consumers in the best possible way”.

“That would be a most unfortunate outcome should the CMA decision stand,” he warns.

It remains unclear who would be interested in buying Jus-Rol should Cérélia be unsuccessful in its appeal.

Cérélia argues no other purchaser would be as incentivised to invest in Jus-Rol, although the CMA says it disagrees with this assertion.

The French group also notes that not a single third party could identify any concrete suitable purchaser, but the CMA believes the purchaser risk to be “manageable” with “a sufficient pool of potential buyers with the requisite experience”.

Either way, the situation won’t be cleared up any time soon, with the appeal to be lodged in the next four weeks and months of legal wrangling to follow. All the while, Jus-Rol remains a brand in stasis, held at arm’s length from its owner for more than a year and counting.

Much rides on the outcome of the appeal, and on the CMA’s confidence a suitable new buyer can be found.

Peter Harper, a partner in the competition, EU and trade team at law firm Eversheds Sutherland, says because of a high intervention rate by the CMA in deals it is becoming increasingly common for companies to challenge the watchdog’s decision in the courts.

“It is a difficult legal bar to meet because you are not challenging the substance of the decision, but you are arguing the CMA has done something procedurally incorrect,” he adds.

If Cérélia ends up exiting the UK, the hundreds of workers in its factory won’t thank the CMA for protecting consumers.

And shoppers may end up with the raw deal of a chronically under-invested category.

Futter also warns the CMA intervention sends a bad signal to any other company wanting to make a genuine well-intended investment in this market segment.

“The market is full of retailer-supplier inequalities and needs strong suppliers to sustain healthy investment and provide continuity of supply. All this deal does is weaken the supplier base still further.”