1. Joint purchasing agreements
DIA AND EROSKI AGREEMENT
06/24/2015. DIA and EROSKI have announced, in a notification to Spanish Exchange Market Authority (CNMV), their agreement to jointly negotiate with their providers and increase their bargaining power. According to the statement released by EROSKI to the CNMV (DIA’s statement is along the same lines):
“The agreement consists in a collaboration between both companies which will improve negotiation conditions with suppliers of national and international brands. The agreement excludes in its entirety anything concerning local fresh produce and agreements with small local manufacturers.
Both EROSKI and DIA’s trade policies will remain completely independent.”
From a competition law perspective, the case at hand deals with a cooperation agreement between competitors, and thus should be analysed with regards to established horizontal agreement rules.
First of all, this means that it is not necessary –nor pertinent- to notify the transaction to the relevant authorities; the companies must undergo a self-assessment to see whether the restrictions which the company seeks to introduce are counterbalanced by consumer benefits which may be derived from the new policies.
As recently discussed (here and here), despite the traditional view that strengthening the purchasing power of distributors is a desirable method to address the (greater) purchasing power of manufacturers and thus achieve better conditions which eventually translate into better conditions for consumers, lately these agreements have received much scrutiny from authorities in other Member States:
- Italy: In September 2014 the Autoritá urged several distributors to dissolve the buying group Centrale Italiana, due to risks associated with it.
- Germany: The Bundeskartellamt published a report in September 2014 that was very critical of agreements within distribution sector, especially those which it qualified as “new generation”: those which encompass aspects which go further than mere purchasing agreements (private label management, coordination of stocks, shared storage etc.)
- France: After agreements between core brands in late 2014, the authority published a reporton 31 March 2015 warning of the risks that these agreements represent for competition; in fact, it has been introduced the obligation to notify, two months in advance, any agreements of joint purchase above certain thresholds.
In accordance with these precedents and with the Commission’s Guidelines on horizontal cooperation agreements, an assessment of the risks associated with competition in joint purchasing agreements must necessarily lead to an analysis of both the purchasing and selling markets. Briefly summarized:
- First, in relation to the purchasing market, the risks stem from the increase in buying power which enables companies to demand unjustified conditions, causing problems in product quality and innovation (suppliers are obligated to concentrate solely on price), in supplier-exclusion (by excluding them from the agreement) or even exclusion of other buyers (if the collaboration agreement drives exclusivity with certain providers).
- Second, in relation to the downstream market, the risks stem from a decreased intensity in competition between distributors as a consequence of possible exchange of market-sensitive information (selling prices, product promotions, etc.), an excessive homogenization of distribution costs (which will increase depending on the importance and effect that purchase costs has on selling prices). Furthermore, as highlighted by the French and German reports, this could result in a decrease in brand-mobility (both DIA and EROSKI function through a franchising networks).
- Third, if parties have a prominent selling power, upstream benefits may not be pass-on to consumers (a condition sine qua non to “pass” the self-assessment).
To analyse these matters it is necessary to consider the market shares in the aforementioned markets – the Commission presumes that there are no problems if the market share is under 15%- and the eventual cumulative effects derived from the existence of similar agreements between these or other distributors.
In a brief analysis, although superior to the thresh-olds stipulated by the Commission, the data available on the degree of concentration in both markets – the combined market shares of DIA and EROSKI are 22% of the national commercial area (Alimarket 2015)-, does not seem to be an important cause for alarm1.
Nevertheless, it is important to make the following clarifications:
- The retail market is local and data indicates that the joint market shares of DIA and EROSKI exceed 40% or more in several locations around Spain2. Consequently, it is necessary to analyze the impact of the agreement on competitive incentives in those areas where the operators have, individually, more than a merely insignificant presence (at least 10% each and a joint market share exceeding 40%).
- In relation to the selling market, the Spanish Competition Authority (“CNMC”) precedents indicate that at the time of defining the market it is not necessary to distinguish by product catego-y, and it must be considered in the ambit of the national market. Nevertheless, this conclusion does not overlap with the conclusions reached by the French and German authorities3 perhaps indicating that the analysis should delve deeper so as to take into account the differences that exist in a variety of product categories (fresh products vs. dry goods; introduction of a private label, etc.) and by geographical location (given the different weight that retailers have and re-gional differences in consumption trends)4.
- Moreover, as previously mentioned, the analysis must also contemplate the existence of other similar agreements. A priori, in Spain there do not seem to be any important negative cumulative effects of these agreements, especially if one compares the situation to France, Germany or Italy. Yet, it is important to take into account the existence of other important buying groups such as IFA or EUROMADI, the participation of EROSKI in buying groups at a national (GREDISA) and international level (particularly with INTERMARCHÉ, EDEKA and COOP. ITALIA), the recent agreement of DIA with INTERMARCHÉ for Portugal, the agreements between AUCHAN and EUROMADI (concluded in January) for the management of their private label, among other things5.
The complex nature of all the factors that may affect the outcome of any analysis, make us to come to the conclusion that, in our opinion, it is essential undergo a more profound analysis to ensure that the agreement between DIA and EROSKI does not harm competition. Moreover, this will enable us to anticipate and prepare for the more-than-likely wave of similar agreements which will arise in the near future as a consequence of a domino effect. This, in effect, is what the French and German authorities have already done.
It will, of course, also be necessary to pay close attention to ensure that the agreement, which will most likely translate into an increase of pressure on providers, does not result in a reduction of the degree of intensity of competition in both retailer and in the buying markets (unjustified requirements that could lead to the expulsion of determined providers in certain categories)6.
DIA / INTERMARCHÉ AGREEMENT
05/22/2015. The agreement reached with EROSKI, is only one step more in the furtherance of DIA’s strategy to lower its costs. In May DIA announced the creation of a buying group with the French group INTERMARCHÉ through which both would jointly acquire products for their establishments in Portugal, however while still excluding fresh products and locally-bought foodstuffs, as well as negotiating with SMEs. However, unlike the agreement reached in Spain, DIA and INTERMARCHÉ has agreed to the creation of a society, CINDIA, which will be exclusively responsible to negotiate with name brands.
2. Sanctioning proceedings
CORRUGATED FIBERBOARD (Press release)
06/23/2015. The CNMC published its decision to impose a fine amounting to EUR 57.7 million on 18 companies specialized in paper and corrugated fibreboard manufacturing as well as on the Corrugated Fibreboard Manufacturers Association (AFCO). The parties being fined include companies such as SAICA (€ 24.5 million), SMURFIT KAPPA (€ 8.1 million) and EUROPAC (€ 5.4 million).
The Spanish Authority found that the parties were involved in information exchange, price recommendations, price-coordination agreements as well as customer allocation between 2002 and 2013 in two vertically interrelated markets: (i) the pulp and paper market, two materials used in the production of corrugated fibreboard, and (ii) in markets specialized in producing corrugated fibreboard used for packaging purposes.
RETAIL-FOOD PACKAGING (Press release)
06/24/2015. The European Commission has imposed fines totalling in almost EUR116 million to eight manufactures and two distributors of polystyrene and polypropylene used for retail packaging of food.
According to the Commission, in the last decade manufacturers HUHTAMÄKI, NESPAK, VITEMBAL, SILVER PLASTICS, COOPBOX, MAGIC PACK, SIRAP-GEMA and LINPAC and distributers OVARPACK and PROPACK were involved in activities such as price-coordination, allocation of customers and markets, coordination of their bids for tenders and the exchange of commercially sensitive information. The parties involved operated in five different cartels, one of which was the polystyrene foam tray cartel in Spain and Portugal where, between March 2000 and February 2008, VITEMBAL, OVARPACK and most notably COOPBOX operated.
The Commission received notice of the cartel under the leniency program, under which LINPAC received full immunity for being the first company to reveal the cartel, and thus avoided a EUR 145 million fine. Six other companies have received fine reductions ranging from a 10% to a 50%reduction for their cooperation in the investigation.
Last December marked the approval of the Directive on antitrust damages which aims to facilitate damage claims well obliges Member States to adapt national laws on damage claims before December 2016.
In short, the Directive facilitates access to evidence proving the harm that victims have suffered (there is a rebuttable presumption that cartels cause harm) and the level of harm (at a somewhat lower standard of proof).
The affairs dealing with corrugated fibreboard and retail food packaging are clear examples of violations that could result in several dam-age claims brought by consumer product manufacturers. For a more detailed discussion on the implications of the Directive at a Spanish level, click here.
DRUGSTORE, PERFUMERY AND HYGIENE PROD-UCTS (Press release)
06/22/2015. A fine amounting to EUR174 million has been imposed on 18 companies by the Belgian Competition Authority due to their involvement in coordinated price increases of drugstore, perfumery and hygiene products between 2002 and 2007.
The companies being fined include distributors such as CARREFOUR, INTERMARCHÉ and MAKRO and, on the manufacturer side, companies such as HENKEL, PROCTER & GAMBLE, UNILEVER and L’ORÉAL.
According to the decision, the infringement would have been configured in a hub and spoke practice: price coordination between the distributors (spokes) was possible due to the intermediation of a common manufacturer (the hub) who relayed information to the different distributors. Consequently, there was no direct contact between the different distributors, nor between the different manufacturers involved.The proceedings began after COLGATE-PALMOLIVE denounced the practice under the Belgian leniency program, and therefore received full immunity. Subsequent fines to the other parties have been imposed within the framework of a settlement procedure.
This set of fines is one of a long line of multi-million euro fines imposed on companies in the hygiene sec-tor by several national authorities (most notably the fine imposed by the French authority in December 2014 or the fine imposed in March 2013 by the German authority).
RETAIL PRICE-FIXING (Press release)
06/18/2015. In a press release, the Bundeskartellamt informs that the majority of the proceedings against manufacturers and retailers for participating in price-fixing cartels in the following sec-tors: confectionary, coffee, body care products, pet food and beer (the last two are still pending resolution).
So far the German authority has imposed fines amounting to EUR151.6 million: including manufacturers such as HARIBO and retailers such as EDEKA; REWE; METRO and ALDI.
It is important to highlight the role played by retailers as the “instigators” of the illegal practices – policing and monitoring retail prices and demanding that manufacturers intervene in the case of a “diversion” in prices- or merely as complying with the instructions of other manufacturers.
Conversely in Spain, despite some notable exceptions (see the case on oil), authorities will more likely monitor a manufacturer rather than a retailer in price-fixing cases.
The proceedings were launched in 2010 with several inspections carried out based on evidence obtained in a previous investigation into the coffee and confectionary sectors.
INDUSTRIAL ICE CREAM MARKET (Press release)
06/11/2015. After a complaint from a competitor, the Italian Competition Authority has opened an investigation into possible abusive conduct carried out by UNILEVER in the impulse and immediate consumption markets of industrial ice cream. The investigation focuses primarily on exclusive loyalty fees and discounts that UNILEVER could have provided for its sales outlets, all of which could have excluded competitors from the market.
In the frame of the investigation, the Italian Authority has carried out inspections at both UNILEVER’s Head Office and at some of their dealers.
POWER ABUSE IN AGRI-FOOD SECTOR (Press release)
06/24/2015. The Italian Competition Authority has launched an investigation against the super market chain COOP ITALIA and the cooperative CENTRALE ADRIATICA in order to determine if either company has abused its power and subsequently imposed on manufacturers in the food production market excessive economic rebates.
The Italian Authority has carried out inspections at both of the companies’ headquarters.
COTY/ PROCTER & GAMBLE (Press release)
07/09/2015. Coty has reached an agreement to acquire Procter & Gamble’s beauty and cosmetic division for $12.5 billion. The deal includes 43 brands such as Wella, Clairiol, VW and Max Factor and perfume licenses including Gucci, Hugo Boss and Dolce Gabbana, enabling Coty to double its size, overtake L’Oréal and places them as the leader in the fragrance sector, as well as making him one of the main actors in hair treatment and makeup. The operation would be subject to the European Commission’s approval.
CARGILL/ADM (Press release)
07/17/2015. Cargill’s acquisition of Archer Daniels Midland (ADM) has been approved subject to the sale of the ADM plant in Mannheim (Germany) in order to ensure competition within the local industrial choco-late market. The Commission has not identified any of these risks in any other areas, nor has it identified any other risks derived from Cargill’s presence in vertically-related markets such as the market for cocoa products or cocoa-substitutes.
BRIGHT FOOD/MIQUEL ALIMENTACIÓ (Press release)
07/03/2015. The Chinese company BRIGHT FOOD has announced its plans to buy the Spanish Company MIQUEL ALIMENTACIÓ. The transaction has not yet been notified to the European Commission.
07/24/2015. After several days of protests French farmers have been able to reach an agreement, backed by the French government, with both the in-dustrial sector and distributors.
The commitments agreed upon include the following:
Increase in the price of milk from the current 29/30 cents per liter to 34 cents and for pork an increase to up to €1.40/kg.
A pledge on behalf of the French government in addition to a large number of distributors and dairies, to only acquire and distribute French milk.
French authorities have defended the agreements on the basis that it aims to end dumping practices, a practice which the European Union seeks to eliminate.
According to several press releases, following a meeting with the sector on 29 July, the Ministry of Agriculture has contacted the CNMC and the European Commission on whether the French agreements are compatible with competition law.
PRICING PRACTICES IN THE GROCERIES MARKET
07/16/2015. The UK Competition and Markets Authority has issued a report on pricing practices in the groceries market. The report was issued in response to a supercomplaint made by WHICH? in April of this year.
The report describes the existence of certain promotional and pricing practices which, in the opinion of the CMA, could be misleading and confusing and thus incompatible with the Consumer Protection from Unfair Trading Regulations 2008 (CPRs): special offers that don’t actually provide savings for consumer, unclear unit pricing that prevents consumers to make price and quality comparisons, etc.
The CMA does not rule out taking on additional measures in cases where there is a clear breach of CPRs.
QUESTIONNAIRES ON E-COMMERCE SECTOR
07/10/2014. The European Commission has sent questionnaires to retailers across Europe asking for extensive information about contracts, sales and prices for popular products like consumer electronics and cosmetics. The questionnaires sent out to brick and mortar retailers as well as online marketplaces, are part of an inquiry into Europe’s e-commerce sector.
The questions make clear that authorities are looking for bottlenecks and restraints that could distort and fragment Europe’s online market. The regulator is also mapping out price differences across the 28-nation bloc.
In principle, as explained here, DG Competition’s conclusions will feed into numerous legislative initiatives but it also provide the competition services with fodder for future antitrust investigations.
Similar questionnaires have yet to be sent to manufacturers in order to cover the whole e-commerce sector.
The final report is expected to be issued in spring 2017.
06/22/2015. A Commercial Court in Valencia has issued a judgement against Quimi Romar, S.L. and Cosmetic Care 3000, S.L. due to misleading and imitation practices, as well as gaining unfair advantage from the reputation of others. The defendants manufactured and distributed various personal grooming products packaged in containers substantially similar to those used by the plaintiff (UNILEVER).
The determining factors sustaining the judgement were the fact that the products were marketed through the same channels –drugstores and dedicated aisles in supermarkets– and the similarities among the products of each type. According to the Judge, “after the confrontation of the various products the essential similarities regarding the placement of their distinctive identifier signs, the denomination displayed in highlighted typographies, the colours and shapes of the containers, taken together, easily mislead the average consumer into purchasing the wrong product”.
The judgement obliges the defendants to cease and desist their conduct, withdraw the misleading products from the market, bear the cost of their destruction or donate them to charity and to compensate UNILEVER in the amount of EUR 123,986.13.