The supply of matches and disposable lighters: A report on the supply for retail sale in the United Kingdom of matches and disposable lighters

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On 21 May 1991 we were asked to investigate and report on whether a monopoly situation existed in the supply of matches and disposable cigarette lighters for retail sale (see Appendix 1.1). Both products are used for the same purpose and we found that they were close substitutes, particularly for smokers, and we treated them as one market, although there were differences in the way both supply and competition had developed.

The only United Kingdom manufacturer of matches is Bryant & May Ltd (Bryant & May), a subsidiary of Swedish Match Group BV (Swedish Match). Bryant & May has been selling matches in the United Kingdom since the 1850s. In 1987 Bryant & May and another match company, J John Masters Ltd (Masters), both owned by Allegheny International Inc (Allegheny), were acquired by Swedish Match AB. This acquisition was cleared by an MMC inquiry, taking into account the already close relationship between the companies and the benefits for United Kingdom employment of the merger as well as other factors. Total sales of matches in the United Kingdom in 1990 amounted to £28 million, of which Bryant & May's share was 86 per cent. Its share by volume was 78 per cent.

Disposable lighters are not manufactured in the United Kingdom. There are eight significant suppliers, of which Bryant & May is by far the largest, selling the lighters both of its parent company, Swedish Match, and of Flamagas SA (Flamagas). Legitimate sales in the United Kingdom amounted to £6 million in 1990, of which Bryant & May supplied 63 per cent. Its share by volume was 48 per cent. There is an excise duty amounting to 50p on each lighter. Smuggling of lighters has increased markedly since the Republic of Ireland removed such duties in January 1990. If an estimate of smuggled lighters is included in the figure for the total market, Bryant & May's share in 1990 would be between 30 and 41 per cent by value, 23 to 31 per cent by volume.

Bryant & May supplied well over 25 per cent of the combined sales of matches and disposable lighters by both value and volume and we found that a monopoly situation existed in its favour and also in favour of its parent companies, Bryant & May (Holdings) Ltd, Larchgreen Ltd, Swedish Match International BV and Swedish Match.

There are two main types of matches sold in the United Kingdom: strike-anywhere matches and safety matches. They are sold in three box sizes: standard, smoker's and household. We found that Bryant & May has significant market strength. There are few competitors supplying strike-anywhere matches, which are preferred by many customers particularly in the North of England and in Scotland. Bryant & May has a 92 per cent share of sales by volume of branded strike-anywhere matches, including its Swan Vestas smoker's match. Bryant & May also supplies almost two-thirds of sales by volume of branded safety matches. It is the only company with well-established match brands. Matches are also supplied to retailers and wholesalers under the customer's own brand name (which we refer to as own-label). Bryant & May has a share of own-label sales of 43 per cent by volume.

Bryant & May faces more competition on disposable lighters, for which there are no strong brand loyalties. There are two main types of disposable lighters, ones that can be refilled (which we refer to as semi-disposable) and ones that cannot. Bryant & May is the largest supplier of both, but most of its competitors only supply lighters which cannot be refilled.

Both matches and disposable lighters are sold to wholesalers, cash-and-carry outlets and direct to some retailers. About 60 per cent of Bryant & May's sales are to wholesalers and cash-and-carry outlets and over 20 per cent are to multiple retailers. In our survey of wholesalers and retailers, a majority said that their bargaining strength was low on matches.

Bryant & May is the market leader on prices at both wholesale and retail level. Retail prices for all makes of matches are generally set at or, in some cases, above Bryant & May's recommended retail price (RRP). The evidence suggested that at current price levels there was little sensitivity to match prices by final consumers, a standard box of matches costing less than one cigarette. There is greater price competition on disposable lighters but, like matches, lighters are an ancillary purchase, frequently bought with cigarettes as and when needed.

Excise duty is relatively higher on lighters than on matches both as a proportion of the purchase price and per light. This, we found, has sustained match sales at a higher level than would otherwise have occurred. It has also encouraged the sale of the more expensive, semi-disposable lighters, as against disposable lighters. Whether excise duties will remain is questionable for a number of reasons and this may also have had an inhibiting effect on competition.

We found that Bryant & May had included provisions in some of its agreements with major customers relating to discounts, exclusivity on promotional activities and minimum stocking requirements. The majority of us concluded that these would strengthen its own position and weaken that of its competitors and found these to be against the public interest. We have recommended that Bryant & May should not include such provisions in agreements in future.

We found that since the 1987 merger, and the integration of the operations of Bryant & May and Masters, Bryant & May's profits on matches had increased substantially, notwithstanding that it raised its branded prices on average at a rate no greater than the Retail Price Index (RPI) in line with an assurance given to the MMC at the time of the 1987 inquiry. The extremely high return on capital employed on matches reflected in part low and declining levels of capital employed. However, Bryant & May's profitability on matches measured on the basis of return on turnover was also very high-28 per cent in 1990, 25 per cent in 1991. The majority of us found that Bryant & May's pricing policy was an action attributable to the monopoly situation which had led to excessive profits, with the adverse effect that prices were higher than would prevail in more competitive conditions, and concluded that this fact operated against the public interest.

We have recommended that Bryant & May should, in the case of branded matches, make no increases in its current prices to its customers or in its RRPs for two years, and that thereafter both its prices and its RRPs should continue to be controlled by reference to the RPI minus a factor to ensure that it did not achieve excessive profits. We recognised, however, that if a decision was taken to remove excise duty, this could have a marked effect on the competitiveness of the market and on Bryant & May's market power. In these circumstances whether and to what extent price control should be applied would need to be reconsidered, once the effects of duty removal had become clear.

Regarding disposable lighters, Bryant & May had a smaller market share than for matches and whilst its profitability on lighters had been high it had fallen substantially. We concluded that no adverse effects for the public interest arose in relation to disposable lighters.

One of our group, Mr. K S Carmichael, dissented from the conclusions relating to the public interest mentioned in paragraphs 10 and 11 for the reasons given in his note of dissent. He considered that Bryant & May, in entering into agreements with eight of its largest 20 customers so that discounts could be received, was reacting to competition. He also considered that Bryant & May's profits in recent years had been materially affected by factors which would not recur or would have a reduced effect in future years, and that the reasons for its higher prices included its quality of product, distribution network and ownership of brands. Since he did not agree that Bryant & May had taken steps which were against the public interest, Mr. Carmichael concluded that remedies were not necessary.

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