Katy Oglethorpe
France’s Competition Authority has fined the pet food subsidiaries of Nestlé, Mars Incorporated and Colgate-Palmolive more than €35 million for restricting competition in the markets for dried food for cats and dogs.
Royal Canin is one of the brands implicated
Collectively, the manufacturers account for more than 70 per cent of dry pet food sold in France. The companies sell their products to independent wholesalers, which then distribute to specialist stores, vets and breeders.
According to the authority, from 2004 to 2008 the companies forced wholesalers to comply with certain resale prices and territorial restrictions. Nestlé Purina Petcare France and Mars subsidiary Royal Canin allegedly cut wholesalers out of the price negotiation process and only discussed prices with shops.
“On the strength of this system, the wholesalers were not free to set their prices and the rate negotiated nationally for shops of the same retail chain was applied in the same way by all wholesalers,” says the authority. “Retailers were unable to rely on competition between wholesalers to reduce their supply costs.”The companies also allegedly imposed territorial restraints on wholesalers, which were restricted from selling products to outlets situated outside their allocated distribution area.
“Each wholesaler operated over a limited geographical area, determined by the manufacturer,” says the authority. “This territorial exclusivity contributed to wholesale market partitioning and weakening competition between wholesalers for products of the same brand.”The companies also allegedly set up “distinct and impenetrable distribution systems” for their top-of-the-range products. Sales to specialist shops and breeders were distributed by independent wholesalers, while products intended for vets and supermarkets were distributed directly by the manufacturers. According to the commission, this further partitioned the dry food market.
“All these competition restraints were of a kind that generate additional costs and therefore repercussions on the prices charged to end consumers of the Nestlé Purina Petcare France and Royal Canin brands,” says the authority.Hill's Pet Nutrition was sanctioned for restricting sales of its products outside France. The Colgate Palmolive-subsidiary allegedly included a clause in its contract with wholesalers which banned them from delivering products to vets outside France without the manufacturer's prior agreement.
But the authority says this behaviour was not ultimately damaging to competition as it only affected the veterinary sector and had not been applied in practice.Nestlé/Nestlé Purina Petcare was fined €19 million, Mars/Royal Canin €11.62 million and Hill's Pet Nutrition/Colgate Palmolive €4.66 million.
In setting the fines, the authority says it considered the damage to the economy and the financial situation and global reach of each company.The authority says the behaviour was particularly damaging because it involved products “that elicit an emotional investment for end consumers, who are vulnerable to brand loyalty”. It says price elasticity in the pet food sector is low, meaning that the companies were able to increase prices “even more sharply” without fear of consumer disloyalty.
Royal Canin’s fine was increased due to previous anti-competitive infringements. In June 2005 the company was fined €5 million by the then Competition Council for using anti-competitive customer allocation schemes, loyalty rebates and resale price maintenance rules.But Royal Canin and Nestlé Purina Petcare also had their fines reduced by 20 and 18 per cent respectively for waiving their right to challenge the charges and promising to introduce compliance programmes.
Counsel to Mars IncorporatedBredin Prat
Partners Robert Saint-Esteben and Olivier Billard in Paris, assisted by Sofia El HaririCounsel to Royal Canin
Nomos Glashütte
source: http://www.globalcompetitionreview.com/news/article/31549/france-penalises-pet-food-makers/
