Purchase of Lyfju hf by Festi hf

The Competition Authority has approved the acquisition of Lyfju hf. by Festi hf., subject to conditions. In the view of the Competition Authority, the terms of the settlement and the measures taken by Festi have a positive effect on competition in the pharmacy and grocery markets, and the authority considers the settlement to be sufficient to prevent any potential harmful effects of Festi's takeover of Lyfju. In light of this, the merger was therefore approved with conditions. 

Festi operates, among others, the Krónan, N1 and Elko stores. Lyfja operates its namesake pharmacies and the wholesaler Heilsa. All of the above-mentioned companies are in a strong position in the markets in which they operate. The activities of the merging parties overlap particularly in the retail market for toiletries and cosmetics and the retail market for health products. The merger also affects the wholesale market for the import and distribution of health products.

An investigation by the Competition Authority revealed market concentration in the retail of toiletries and cosmetics, and in the retail of health products (particularly vitamins, supplements and minerals) in certain regions, especially East and South Iceland. Lyfja also holds a strong position in the sale of these product categories in North Iceland and the Westfjords. Such concentration can lead to a reduction in competition, but in this case, the grounds for intervention were not considered to exist. Festi and Lyfja are not considered particularly close competitors in the sale of these products, there is online competition in these areas, and these are not everyday consumer goods. Festi also announced plans to increase the level of service in the countryside in the grocery market, and that the price policy of Krónan and Lyfju, which is to have one price across the country, will continue to apply after the merger.

During the investigation, competitors of Festi and Lyfju in the retail of these products expressed concerns about restricted and unequal access to important health products, which distorts competition in the market.

Reviews of mergers in the pharmacy market have revealed a significant shortage of pharmacists in the country. Restrictions on their freedom to work, due to non-compete clauses in employment contracts—namely, an obligation not to start work with a competitor for a specified period after the employment relationship ends—limit the ability of smaller competitors as well as new entrants to start or expand their operations.

Festi requested settlement negotiations and put forward proposals for conditions which the Competition Authority agreed to. The conditions mainly consist of i) Heilsa ehf. operates independently with operational separation from Festi in the wholesale of health products, and ii) that Festi and Lyfja will remove non-compete clauses from pharmacists' employment contracts and will not include such provisions in future contracts.