Mega Market’s takeover of Lobels could give the bakery greater control over one of its most important inputs flour but the regulator has put a limit on how far that integration can go.

The Competition and Tariff Commission has approved Mega Market’s acquisition of 100 percent of Lobels Holdings subject to conditions, including a requirement that Lobels sources at least 50 percent of its bread flour from other local millers for the first two years.

Economists say the condition is designed to ensure that the takeover does not give Mega Market too much control over both flour supply and bread production.

Economist Jabulani Chibaya said the requirement would keep other flour millers in the market after the two businesses came under one ownership.

“The economic rationale is to preserve contestability and competitive pressure in the flour market after vertical integration,” Chibaya said.

A vertical merger happens when businesses operating at different stages of the same supply chain come under one ownership.

In this case, Mega Market operates a flour milling business while Lobels produces bread and confectionery products for consumers.

Economist Lucian Past said this makes the transaction mainly a vertical merger, with Mega Market supplying flour upstream and Lobels using the input to produce baked products downstream.

He said the integration could help address some of the supply problems that have affected Lobels in the past.

Lobels has previously faced production disruptions linked to shortages of foreign currency, fuel and electricity, while Zimbabwe’s flour supply has also been affected by international disruptions.

Past said greater control over flour supply could therefore help reduce some of the input shortages that have affected production.

However, he said the deal also creates a competition issue because Mega Market will now have interests on both sides of the flour and bakery supply chain.

Chibaya said that without safeguards, the integrated company could potentially favour its own flour, restrict competitors’ access to flour or use its position to influence prices and availability.

“Without safeguards, the integrated firm could potentially favour its own supply, restrict competitors' access to flour, or use its upstream position to influence prices, availability or distribution,” he said.

The 50 percent requirement means Lobels must continue buying at least half of its bread flour from other local millers, provided they offer reasonable commercial terms.

This gives rival millers continued access to a major bakery customer while allowing Mega Market to benefit from owning both businesses.

The issue also extends beyond Lobels.

Past said Zimbabwe’s bread market has historically been concentrated among a few major producers, making the effect of the acquisition something regulators will need to monitor.

For other bakeries, Mega Market’s growing presence could mean a stronger competitor with access to milling, production, distribution and branding under one group.

But Chibaya said stronger competition itself is not necessarily a problem if other businesses retain a realistic opportunity to compete.

“The important competition-policy question is therefore not whether Lobels becomes stronger—it is whether competitors retain a realistic ability to compete,” he said.

For consumers, the outcome could work in different ways.

Greater integration could improve the reliability of flour supplies, reduce supply-chain costs and support more consistent production. Competition between bakeries could also encourage businesses to compete on prices, quality, product variety and distribution.

The concern would be if the combined business became strong enough to restrict rivals’ access to flour or weaken competition.

Past said the success of the deal would ultimately depend on how Mega Market manages the business and whether the expected benefits materialise.

For now, the CTC’s two-year flour condition creates a balance: Mega Market can integrate Lobels into its business, but Lobels must continue giving other local millers a share of its flour business.

Chibaya said the objective was not to protect existing businesses from competition, but to preserve a market where efficient businesses can compete and consumers retain meaningful choice.

“Ultimately, the economic objective is not to protect every incumbent bakery from competition, but to preserve a market in which efficient bakeries can compete, independent suppliers remain viable, and consumers retain meaningful choice at competitive prices,” he said.