European competition authorities are launching an investigation into Coca-Cola’s sales policy in the region, with a focus on the beverage maker’s discounting system.
The competition authority declined to comment. However, it is understood that the Commission is examining the activities of Atlanta-based Coca-Cola Company and the European business Coca-Cola Europacific Partners across a number of European markets. The aim of the inquiry is to determine whether Coca-Cola’s condition system imposed on food retailers is impairing competition in the market for non-alcoholic drinks.
FoodNavigator understands that the Commission has sent questionnaires to retailers in a number of different countries as part of the ‘first stage’ of the investigation. The contents of these surveys are confidential. However, reports in the German media suggest that questions focus on the granting of ‘range’, ‘target’ and ‘coupling’ discounts, as well as discounting for exclusivity and the provision of fixed shelf or refrigerator space for Coca-Cola brands.
The Commission is also looking at what Coca-Cola products are considered essential in retailer ranging strategies, we were told by sources in the retail sector. This is a pivotal question because it speaks to the bargaining power that Coca-Cola is able to exert over retailers in relation to allegations of so-called tying/bundling, in which retailers can only get supplies of a ‘must-have’ product if they stock other parts of the range.
The case has echoes of a 2005 competition ruling, in which the EC found Coke was using its market position to stifle competition through sales agreements.
Like the allegations Coca-Cola is facing today, the 2005 ruling found Coca-Cola required retailers and foodservice companies to stock less popular brands and SKUs, ensuring brands that customers might not consider ‘must have’ products got share-of-shelf.
At the time, Coke avoided a fine. However, in an agreement that was legally binding until 2010 the company was required to overhaul its business model in European countries where it had a commanding market share, including France, Germany and the UK.
‘We abide by European competition law’
A spokesperson for Coca-Cola confirmed that the company is aware of the European Commission probe and revealed that a ‘formal request for information’ was received last week (20 May).
The spokesperson told FoodNavigator that the business will ‘co-operate fully with the Commission’, noting that it would be ‘inappropriate’ to comment further while the process is on-going.
However, the Coca-Cola representative added: “We abide by European competition law, as well as all other applicable laws and regulation. We support this through clear guidelines and policies, regular trainings and audits across our business.”
If Coca-Cola is found to have breached competition laws, the consequences could be material.
The Commission’s fining policy is aimed at ‘punishment and deterrence’. The starting point for any fine is up to 30% the annual sales generated by products linked to the infringement. This is multiplied by the time competition rules were broken. Fines for businesses acting outside of EU competition law are capped at 10% of overall annual turnover. In Coca Cola’s case, the company generated sales of around US$33bn in 2020. CCEP alone generated sales of €13.5bn in 2020.
In 2019, AB InBev was fined €200m for abusing its dominant position on the beer market by restricting cross-border sales. This figure included a 15% reduction, reflecting the EC’s more lenient stance towards vertical non-cartel cases as well as AB InBev’s ‘extensive’ cooperation and acknowledgement of wrongdoing.
Makers of ‘must have’ products ‘limit competition’: EuroCommerce
Large multinational brands provide many products that consumers expect to find in stores. 'Must have' brands are considered products that, if not found on-shelf, consumers would change to a competing retailer to buy.
While Coca-Cola maintains that it abides by regional competition regulations, European retailer association EuroCommerce insisted that the case points to a ‘long-standing’ bigger problem. Branded manufacturers of ‘must have’ products abuse their market position to ‘limit competition’, Director-General Christian Verschueren argued.
“We have for many years pointed to the problems our sector faces with the makers of ‘must-have’ products using their market power to impose unilateral conditions and limit competition to their advantage. Coming on top of other recent investigations into the practices of large multinational manufacturers in the fast-moving consumer goods industry, we are pleased that the Commission has taken up this investigation, which we believe will shed further light on how large suppliers use their market power to the disadvantage of consumers and with no benefit to farmers,” he argued.
Verschueren placed developments in the context of the Unfair Trading Practices directive, which is currently being implemented by member states. The directive aims to protect suppliers of a certain size – mainly small farmers and processors – against pressure from larger buyers.
EuroCommerce stressed that retailers and wholesalers purchase most of what they sell from large manufacturers and other suppliers, and very little (less than 5%) directly from farmers. These large manufacturers are able to enjoy 'significant' net profit margins of 'up to 15-30%' (Coca Cola Co's net margin for 2020 was around 23%) compared to retailer net margins, which typically sit at 1-3%. "These multinational manufacturers confront retailers year after year with large unilateral price increases with little or no justification," Eurocommerce argued.
The retailer association believes the UTP directive should be extended to tackle the market power of large suppliers.
“In our view, rather than being protected by UTP law, abusive practices by dominant FMCG manufacturers need the closer EU competition scrutiny we see here, and enforcement action at EU and national level to ensure fair competition across the supply chain.”