Case 1:21-cv-02976-RBW Document 1 Filed 11/10/21 Page 1 of 16
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`UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`Civil Action No.:
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`UNITED STATES OF AMERICA,
`United States Department of Justice
`Antitrust Division
`450 Fifth Street NW, Suite 4100
`Washington, DC 20530,
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`
`Plaintiff,
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`v.
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`B.S.A. S.A.,
`33 Avenue du Maine
`Paris, France 75015,
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`LAG HOLDING, INC.,
`2376 South Park Avenue
`Buffalo, NY 14220,
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`and
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`THE KRAFT HEINZ COMPANY,
`One PPG Plaza
`Pittsburgh, PA 15222,
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`Defendants.
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`COMPLAINT
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`The United States of America brings this civil antitrust action to enjoin B.S.A. S.A. and
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`its subsidiary, LAG Holding, Inc. (together “Lactalis”), from acquiring the natural cheese
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`business of The Kraft Heinz Company (“Kraft Heinz”) in the United States. This combination
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`would bring together the two largest suppliers of feta cheese in the United States and the two
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`largest suppliers of ricotta cheese in the metropolitan and surrounding area of New York, New
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`York, and in four metropolitan and surrounding areas in Florida. As a result, the proposed
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`Case 1:21-cv-02976-RBW Document 1 Filed 11/10/21 Page 2 of 16
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`combination of Lactalis and Kraft Heinz would likely lead to higher prices, lower quality, and
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`reduced choice for retail consumers of these cheeses, at a time when many Americans are
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`struggling to meet rising food prices. The transaction should be enjoined to prevent American
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`consumers from suffering these likely anticompetitive harms. The United States alleges as
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`follows:
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`I. NATURE OF THE ACTION
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`1.
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`Grocery and supermarket purchases account for a significant portion of the
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`household budget for American families, and Americans’ food bills are rising. According to the
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`USDA’s Economic Research Service, grocery prices have increased in 2021, and are expected to
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`further increase in 2022, putting more pressure on American consumers who are struggling to
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`make ends meet. Competition plays an important role in keeping down the prices for grocery
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`items, such as cheese, that Americans purchase and use every day.
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`2.
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`B.S.A. S.A. is one of the world’s largest dairy companies, manufacturing and
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`selling cheese in the United States through its subsidiaries, LAG Holding, Inc. and Lactalis
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`American Group, Inc. In the United States, Lactalis sells natural cheeses primarily under the
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`Galbani and Président brand names. Kraft Heinz is one of the largest food products and
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`beverage companies in the world. Kraft Heinz is also the largest supplier of natural cheeses to
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`grocery stores and other retail outlets in the United States, selling natural cheeses primarily under
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`the Kraft, Cracker Barrel, Athenos, and Polly-O brand names.
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`3.
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`On September 15, 2020, B.S.A. S.A. agreed to pay approximately $3.2 billion to
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`acquire Kraft Heinz’s (1) natural cheese business in the United States, which includes feta,
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`ricotta, and many other types of cheeses, but excludes processed cheese and cream cheese, (2)
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`Case 1:21-cv-02976-RBW Document 1 Filed 11/10/21 Page 3 of 16
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`grated cheese business in Canada, and (3) entire cheese business outside North America (the
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`“proposed transaction”).
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`4.
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`The proposed transaction would combine the two largest suppliers of feta cheese
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`sold to retailers in the United States, and the two largest suppliers of ricotta cheese sold to
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`retailers in five metropolitan and surrounding areas located in New York and Florida. If allowed
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`to proceed, the merged firm’s brands would control approximately 65% of all retail feta sales
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`(brands and private label) nationwide, with its next closest branded competitor controlling
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`approximately 6% of retail feta sales. For ricotta, the merged firm’s brands would control
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`approximately 70% of all retail sales (brands and private label) in the metropolitan and
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`surrounding area of New York, New York, with its next closest branded competitor controlling
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`approximately 7% of retail ricotta sales in that market. And in each of the four metropolitan and
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`surrounding areas in Florida identified below, the merged firm’s brands would control over 65%
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`of all retail ricotta sales (brands and private label), with its next closest branded competitor in
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`each of the markets controlling no more than 2% of retail ricotta sales.
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`5.
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`Defendants are particularly close competitors for the sale of feta (through
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`Lactalis’s Président brand and Kraft Heinz’s Athenos brand) and ricotta (through Lactalis’s
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`Galbani brand and Kraft Heinz’s Polly-O brand) to retailers. These strong brands allow Lactalis
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`and Kraft Heinz to compete aggressively with each other in the sale of feta and ricotta cheese in
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`the relevant markets, which has resulted in lower prices and innovative products, such as
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`Lactalis’s double cream ricotta cheese and Kraft Heinz’s flip top container for Athenos crumbled
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`feta cheese, that benefit consumers.
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`6.
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`The proposed transaction would eliminate this competition, likely leading to
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`higher prices, reduced innovation, and fewer choices for these products for retailers in the
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`Case 1:21-cv-02976-RBW Document 1 Filed 11/10/21 Page 4 of 16
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`relevant markets. For these reasons, the proposed transaction is likely to substantially lessen
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`competition in the sale of feta and ricotta cheeses in the relevant markets, in violation of Section
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`7 of the Clayton Act, 15 U.S.C. § 18. The Court should, therefore, enjoin the proposed
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`transaction.
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`II.
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`JURISDICTION AND VENUE
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`7.
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`The United States brings this action pursuant to Section 15 of the Clayton Act, as
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`amended, 15 U.S.C. § 25, to prevent and restrain Defendants from violating Section 7 of the
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`Clayton Act, as amended, 15 U.S.C. § 18.
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`8.
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`Defendants sell cheeses, including feta and ricotta, in the flow of interstate
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`commerce, and their sale of these products substantially affects interstate commerce, including in
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`this judicial district. This Court therefore has subject matter jurisdiction over this action
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`pursuant to Section 15 of the Clayton Act, 15 U.S.C. § 25, and 28 U.S.C. §§ 1331, 1337(a), and
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`1345.
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`9.
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`Defendants have each consented to personal jurisdiction and venue in this judicial
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`district for purposes of this action. Venue is therefore proper in this district under 28 U.S.C. §§
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`1391(b) and (c).
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`III. THE DEFENDANTS
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`10.
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`B.S.A. S.A. is a French company operating under the name Lactalis Group.
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`B.S.A. S.A. is a corporation organized and existing under the laws of France, with its
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`headquarters in Laval, France. It is one of the largest dairy companies in the world.
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`11.
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`LAG Holding, Inc. is a subsidiary of B.S.A. S.A. It is a Delaware corporation
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`with its headquarters in Buffalo, New York. LAG Holding, Inc. and its subsidiary, Lactalis
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`American Group, Inc., generated natural cheese sales of approximately $429 million at retail
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`outlets in the United States in 2020.
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`12.
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`Kraft Heinz is a Delaware corporation co-headquartered in Pittsburgh,
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`Pennsylvania, and Chicago, Illinois. Kraft Heinz is one of the largest food products and
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`beverage companies in the world. Retail sales of its natural cheeses in the United States
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`amounted to over $2.2 billion in 2020.
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`IV. RELEVANT MARKETS
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`13.
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`A typical starting point for merger analysis is defining a relevant market, which
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`has both a product and a geographic dimension. Courts define relevant markets to help
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`determine the areas of competition most likely to be affected by a merger. As described below,
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`both feta cheese sold to retailers across the United States and ricotta cheese sold to retailers in
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`the metropolitan and surrounding area of New York, New York (the “New York Metro Market”)
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`and in four metropolitan and surrounding areas in Florida—Miami/Ft. Lauderdale, Tampa/St.
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`Petersburg, Orlando, and Jacksonville (collectively, the “Florida Metro Markets”)—are relevant
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`markets.
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`A.
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`14.
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`Relevant Product Markets
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`Cheeses are sold to retailers as branded cheeses or private label cheeses. A
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`branded cheese bears a brand name controlled by the cheese supplier (e.g., Kraft Heinz’s
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`Athenos and Polly-O brands and Lactalis’s Président and Galbani brands). A branded cheese is
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`usually carried by multiple retailers. A private label cheese is usually sold under a name owned
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`by the retailer (e.g., Wal-Mart’s Great Value private label), and is typically offered only in that
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`retailer’s stores.
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`15.
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`Grocery stores and other food retailers act as proxies for individual consumers
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`and seek to offer the variety of products demanded by their customers. As a result, retailers
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`strive to carry products and brands that their customers value, and may vary their offerings to
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`meet local customer demand. For example, Polly-O was founded over 100 years ago in the New
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`York City area, where it became quite popular. As residents of the New York City area visited
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`or moved to Florida, they took their Polly-O brand loyalty with them. Thus, Polly-O ricotta
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`cheese has greater competitive significance in grocery stores and other retailers in the New York
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`Metro Market and the Florida Metro Markets than in other areas of the country.
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`1. Ricotta Cheese Sold to Retailers is a Relevant Product Market
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`16.
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`Ricotta is a soft cheese that originated in Italy. It is primarily used as an
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`ingredient in food dishes.
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`17.
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`There are no reasonable substitutes for ricotta cheese for most consumers. A
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`hypothetical monopolist supplier of ricotta cheese to retailers likely would find it profitable to
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`increase its prices by at least a small but significant non-transitory amount. Consumers are
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`unlikely to sufficiently reduce their purchases of ricotta cheese or shift to a different cheese or
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`other products to render such a price increase unprofitable. As a result, retailers, buying on
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`behalf of the consumer, are also unlikely to sufficiently reduce purchases of ricotta cheese to
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`render such a price increase unprofitable. Accordingly, ricotta cheese sold to retailers is a
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`relevant product market and line of commerce within the meaning of Section 7 of the Clayton
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`Act.
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`18.
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`Defining a market for ricotta cheese that is sold to retailers is consistent with
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`industry recognition and practice. Suppliers of ricotta cheese to retailers typically (1) monitor
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`the retail prices of competing ricotta cheeses and set their prices and promotional spending
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`accordingly, (2) do not set the price they charge for ricotta cheese based on the prices of other
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`cheeses or other consumer products, (3) track their sales to retailers separately from their sales to
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`other distribution channels (i.e., foodservice and the ingredients or industrial channels), (4) have
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`sales employees dedicated to serving retailers, and (5) sell ricotta cheese to retailers in packaging
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`and package sizes that are different than that used for ricotta sold through other distribution
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`channels. These factors further support that ricotta cheese sold to retailers is a relevant product
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`market and line of commerce within the meaning of Section 7 of the Clayton Act.
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`2. Feta Cheese Sold to Retailers is a Relevant Product Market
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`19.
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`Feta cheese originated in Greece. It is primarily used as an ingredient in food
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`dishes.
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`20.
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`There are no reasonable substitutes for feta cheese for most consumers. A
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`hypothetical monopolist supplier of feta cheese to retailers likely would find it profitable to
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`increase its prices by at least a small but significant non-transitory amount. Consumers are
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`unlikely to sufficiently reduce their purchases of feta cheese or shift to a different cheese or other
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`products to render such a price increase unprofitable. As a result, retailers, buying on behalf of
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`the consumer, are also unlikely to sufficiently reduce purchases of feta cheese to render such a
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`price increase unprofitable. Accordingly, feta cheese sold to retailers is a relevant product
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`market and line of commerce within the meaning of Section 7 of the Clayton Act.
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`21.
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`Defining a market for feta cheese that is sold to retailers is consistent with
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`industry recognition and practice. Suppliers of feta cheese to retailers typically (1) monitor the
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`retail prices of competing feta cheeses and set their prices and promotional spending accordingly,
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`(2) do not set the price they charge for feta based on the prices of other cheeses or other
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`consumer products, (3) track their sales to retailers separately from their sales to other
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`distribution channels, (4) have sales employees dedicated to serving retailers, and (5) sell feta
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`cheese to retailers in packaging and package sizes that are different than that used for feta sold
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`through other distribution channels. These factors further support that feta cheese sold to
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`retailers is a relevant product market and line of commerce within the meaning of Section 7 of
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`the Clayton Act.
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`B.
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`22.
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`Relevant Geographic Markets
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`The relevant geographic markets for analyzing the effects of the proposed
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`transaction on competition for feta and ricotta cheeses sold to retailers are best defined by
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`reference to the locations of the retailers that purchase feta and ricotta cheeses in order to then
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`sell those products to consumers.
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`23.
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`This approach to defining the relevant geographic markets is appropriate because
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`suppliers of feta and ricotta cheeses to retailers assess the competitive conditions in particular
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`localities, including local demand for feta and ricotta cheeses, as well as local demand for the
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`suppliers’ own brands as compared to competing brands or to private label offerings. As a result,
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`suppliers of feta and ricotta cheeses can charge different prices, or offer different levels of
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`promotional funding, to retailers in different locations based on local competitive conditions. If
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`targeted for a price increase or reduction in promotional funding, retailers in a given locality
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`would be unlikely to be able to render such conduct unprofitable by purchasing feta or ricotta
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`cheeses outside of the relevant geography and transporting it to their retail location.
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`24. Where ricotta and feta cheese suppliers can successfully vary prices and
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`promotional funding based on retailer customer location, the goal of geographic market
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`definition is to identify the area encompassing the location of potentially targeted customers.
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`The relevant geographic markets identified below encompass the locations of retailers that would
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`likely be targeted by suppliers for price increases as a result of the proposed transaction.
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`1. The Relevant Geographic Markets for Ricotta Cheese Sold to Retailers
`Are the New York Metro Market and the Florida Metro Markets
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`The relevant geographic markets for the sale of ricotta cheese to retailers that will
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`25.
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`be harmed by the proposed transaction are the New York Metro Market and the Florida Metro
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`Markets. In each of these markets, Defendants compete vigorously with each other for sales of
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`ricotta cheese to retailers that resell those products to consumers. Defendants’ Polly-O and
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`Galbani ricotta brands combined would account for approximately 70% of all ricotta cheese sales
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`by retailers in the New York Metro Market and over 65% of all ricotta cheese sales by retailers
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`in each of the Florida Metro Markets.
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`26.
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`A hypothetical monopolist supplier of ricotta cheese to retailers in the New York
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`Metro Market and in each of the Florida Metro Markets likely would increase its price by at least
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`a small but significant and non-transitory amount. Therefore, the New York Metro Market and
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`each of the Florida Metro Markets are relevant geographic markets and sections of the country
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`within the meaning of Section 7 of the Clayton Act.
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`2. The Relevant Geographic Markets for Feta Cheese Sold to Retailers Are
`Individual Metropolitan and Surrounding Areas, but can be Analyzed on
`a National Basis for Convenience
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`The relevant geographic markets for the sale of feta cheese to retailers may be
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`27.
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`defined as narrowly as individual metropolitan and surrounding areas. A hypothetical
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`monopolist supplier of feta cheese to retailers in any given metropolitan and surrounding area in
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`the United States likely would find it profitable to increase its prices by at least a small but
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`significant and non-transitory amount. Therefore, each metropolitan and surrounding area in the
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`United States is a relevant geographic market and section of the country within the meaning of
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`Section 7 of the Clayton Act.
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`28.
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`In circumstances where competitive conditions are similar, it is appropriate to
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`aggregate local markets into a larger relevant market for analytical convenience. The
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`competitive conditions across the country are similar for the sale of feta cheese to retailers who
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`purchase the cheese for resale to consumers. Kraft Heinz’s Athenos feta and Lactalis’s Président
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`feta are the two top-selling feta cheese brands in the United States, and combined, the two brands
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`would account for approximately 65% of all feta cheese sales by retailers nationally. While
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`some regional brands of feta cheese exist, none place a significant competitive constraint on
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`Defendants in any particular metropolitan and surrounding area. Therefore, it is appropriate to
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`analyze competition for the sale of feta cheese to retailers on a national basis.
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`V. THE PROPOSED TRANSACTION IS LIKELY TO SUBSTANTIALLY
`LESSEN COMPETITION FOR THE SALE OF RICOTTA AND FETA
`CHEESES TO RETAILERS
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`The proposed transaction would combine the two largest suppliers of ricotta
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`29.
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`cheese to retailers in the New York Metro Market and in each of the Florida Metro Markets, and
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`the two largest suppliers of feta cheese to retailers nationally, resulting in a substantial increase
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`in concentration in these markets.
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`30.
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`The Supreme Court has held that mergers that significantly increase concentration
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`in already concentrated markets are presumptively anticompetitive and therefore presumptively
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`unlawful. To measure market concentration, courts often use the Herfindahl-Hirschman Index
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`(“HHI”) as described in the U.S. Department of Justice and Federal Trade Commission
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`Horizontal Merger Guidelines. HHIs range from 0 in markets with no concentration to 10,000 in
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`markets where one firm has a 100% market share. According to the Horizontal Merger
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`Guidelines, mergers that increase the HHI by more than 200 and result in an HHI above 2,500 in
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`any relevant market or line of commerce are presumed to be anticompetitive and, therefore,
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`unlawful.
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`31.
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`The proposed transaction would eliminate substantial head-to-head competition
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`between Defendants in both ricotta and feta cheese sales to retailers, leading to higher prices,
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`lower quality, and less innovation for these products in the relevant markets.
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`32.
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` The significant increase in market concentration that the proposed transaction
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`would produce in the relevant markets, combined with the loss of head-to-head competition
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`between Defendants, is likely to substantially lessen competition in violation of Section 7 of the
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`Clayton Act.
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`The Proposed Transaction is Presumptively Unlawful and is Likely to
`A.
`Substantially Lessen Head-to-Head Competition for the Sale of Ricotta Cheese to
`Retailers
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`33.
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`In the New York Metro Market, Defendants are the two largest suppliers of ricotta
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`cheese to retailers, and their Polly-O and Galbani ricotta cheese brands combined would account
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`for approximately 70% of all ricotta cheese sales by retailers in that market. In the New York
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`Metro Market, the proposed transaction would increase the HHI by more than 2,400 points,
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`resulting in a highly concentrated market with a post-acquisition HHI of more than 5,000 points.
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`Thus, the proposed transaction is presumptively unlawful in the New York Metro Market.
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`34.
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`In each of the Florida Metro Markets, Defendants are also the two largest
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`suppliers of ricotta cheese to retailers, and their Polly-O and Galbani ricotta cheese brands
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`combined would account for over 65% of all ricotta cheese sales by retailers. In each of the
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`Florida Metro Markets, the proposed transaction would increase the HHI by more than 1,500
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`points, resulting in highly concentrated markets, each with a post-acquisition HHI of more than
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`4,400 points. Thus, the proposed transaction is presumptively unlawful in each of the Florida
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`Metro Markets.
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`35.
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`Defendants are particularly close competitors for ricotta cheese sold to retailers in
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`the New York Metro Market and the Florida Metro Markets. They compete aggressively with
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`each other on pricing and promotions for ricotta cheese and in offering new and innovative
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`products and features, such as double cream ricotta and packaging design.
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`36.
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`The president of the Lactalis American Group Retail Division recognized this fact
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`in February 2019, noting that, “through aggressive pricing we managed to grow the Galbani
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`share at the expense of [Kraft Heinz’s] Poly-O [sic] from 2015 to 2018” in the ricotta cheese
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`category. Additionally, in January 2020, a Lactalis senior sales manager learned of an Easter
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`price promotion on ricotta cheese that Polly-O was offering in the Northeast. Lactalis responded
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`by improving its own Easter price promotion on ricotta cheese.
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`The Proposed Transaction is Presumptively Unlawful and is Likely to
`B.
`Substantially Lessen Head-to-Head Competition for the Sale of Feta Cheese to
`Retailers
`
`
`Defendants are the two largest suppliers of feta cheese to retailers in the United
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`37.
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`States, and their Athenos and Président feta cheese brands combined would account for
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`approximately 65% of all feta cheese sales by retailers nationally. In a national market for feta
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`cheese sold by retailers, the proposed transaction would increase the HHI by more than 2,100
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`points, resulting in a highly concentrated market with a post-acquisition HHI of more than 4,300
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`points. Thus, the proposed transaction is presumptively unlawful.
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`38.
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`Defendants are particularly close competitors for feta cheese sold to retailers in
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`metropolitan and surrounding areas throughout the United States. Kraft Heinz’s Athenos brand
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`and Lactalis’s Président brand are the two top-selling retail brands of feta cheese sold in the
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`United States. A Lactalis executive referred to them as the “two national leaders” in feta cheese.
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`They compete vigorously on prices, promotions, flavor, texture, variety (e.g., fat free,
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`traditional), and quality.
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`39.
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`For example, in November 2020, a national sales manager at Kraft Heinz
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`lamented that Kraft Heinz was “in a really bad position” at a supermarket chain because it “lost
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`the feta business in March when [we] were undercut by Lactalis.” Similarly, a Lactalis
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`marketing plan for feta cheese identified an objective of “steal[ing] market share from [Kraft
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`Heinz’s] Athenos” in 2021.
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`VI. ABSENCE OF COUNTERVAILING FACTORS
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`40.
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`New entry and expansion by competitors are unlikely to be timely and sufficient
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`enough to offset the proposed transaction’s likely anticompetitive effects. Barriers to entering
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`these markets are high and include the substantial time and expense required to build a brand’s
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`reputation and overcome existing consumer preferences through promotional and advertising
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`activity as well as the substantial sunk costs needed to secure the distribution and placement of a
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`new entrant’s products in retail outlets (e.g., paying slotting fees to obtain shelf space at
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`supermarkets and other food retailers).
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`41.
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`The proposed transaction is unlikely to generate verifiable, merger-specific
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`efficiencies sufficient to reverse or outweigh the anticompetitive effects that are likely to occur
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`as a result of the proposed transaction.
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`VII. VIOLATIONS ALLEGED
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`42.
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`The United States hereby incorporates the allegations of paragraphs 1 through 41
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`above as if set forth fully herein.
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`43.
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`The proposed transaction is likely to substantially lessen competition in interstate
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`trade and commerce, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
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`44.
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`Unless enjoined, the proposed transaction would likely have the following
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`anticompetitive effects, among others:
`
`a.
`
`substantially lessening head-to-head competition between Defendants for
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`the sale of feta cheese to retailers in the United States and ricotta cheese to
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`retailers in the New York Metro Market and in each of the Florida Metro
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`Markets;
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`b.
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`substantially lessening competition generally in the market for feta cheese
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`sold to retailers in the United States and ricotta cheese sold to retailers in
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`the New York Metro Market and in each of the Florida Metro Markets;
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`c.
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`causing prices to be higher than they would be otherwise for feta cheese
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`sold to retailers in the United States and ricotta cheese sold to retailers in
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`the New York Metro Market and in each of the Florida Metro Markets;
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`and
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`d.
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`reducing choice and innovation for feta cheese sold to retailers in the
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`United States and ricotta cheese sold to retailers in the New York Metro
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`Market and in each of the Florida Metro Markets.
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`VIII. REQUEST FOR RELIEF
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`45.
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`The United States requests that the Court:
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`a.
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`adjudge and decree the proposed transaction to be unlawful and in
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`violation of Section 7 of the Clayton Act, 15 U.S.C. § 18;
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`Case 1:21-cv-02976-RBW Document 1 Filed 11/10/21 Page 15 of 16
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`b.
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`permanently enjoin and restrain Defendants and all persons acting on their
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`behalf from carrying out the proposed transaction, or from entering into or
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`carrying out any other contract, agreement, plan, or understanding, the
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`effect of which would be to combine Defendants in the relevant markets
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`alleged above;
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`c.
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`d.
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`award the United States its costs for this action; and
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`award the United States such other relief as the Court deems just and
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`proper.
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`15
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`Case 1:21-cv-02976-RBW Document 1 Filed 11/10/21 Page 16 of 16
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`Dated: November 10, 2021
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`Respectfully submitted,
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`
`
`FOR PLAINTIFF UNITED STATES OF AMERICA
`
`
`
`
`
`
` /s/ Richard A. Powers
`RICHARD A. POWERS
`Acting Assistant Attorney General
`Antitrust Division
`
` /s/ Kathleen S. O’Neill
`KATHLEEN S. O’NEILL
`Senior Director of Investigations and Litigation
`Antitrust Division
`
`
` /s/ Eric D. Welsh
`ERIC D. WELSH (DC Bar #998612)
`Chief
`Healthcare and Consumer Products Section
`Antitrust Division
`
`
` /s/ Andrew J. Robinson
`ANDREW J. ROBINSON (DC Bar #1008003)
`Assistant Chief
`Healthcare and Consumer Products Section
`Antitrust Division
`
`
`
`
`
`
`
`
`
` /s/ Justin M. Dempsey
`JUSTIN M. DEMPSEY* (DC Bar #425976)
`GIANCARLO R. AMBROGIO (DC Bar
`#1736460)
`CHRIS HONG
`GARRETT M. LISKEY (DC Bar #1000937)
`NATALIE R. MELADA
`
`Attorneys for the United States
`United States Department of Justice
`Antitrust Division
`Healthcare and Consumer Products Section
`450 Fifth Street NW, Suite 4100
`Washington, DC 20530
`Telephone: (202) 307-5815
`Facsimile: (202) 307-5802
`Email: Justin.Dempsey@usdoj.gov
`
`*LEAD ATTORNEY TO BE NOTICED
`
`
`
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`16
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`