Trends in Retail Competition: Private Labels, Brands and Competition Policy

1. Trends in Retail Competition: • Private Labels, Brands and Competition Policy • A Symposium on the Role of Private Labels in Competition • between Retailers and between Suppliers • The Institute of European and Comparative Law • in conjunction with the Centre for Competition Law and Policy • Oxford, 9 June 2005 • Sponsored by Bristows CCLP (S) 03/05

3. Overview • Competition concerns from buyer power • Competition concerns from own label • Current approach of competition authorities • Combination of buyer power and competitor role • Possible remedies

4. Relevant market for grocery procurement • Each different product or group of products constitutes • a different product market (Ahold / Superdiplo) • Grocery procurement market may constitute separate • market particularly for branded goods (Carrefour / Promodes) • Geographic market remains national but a wider scope • cannot be excluded

5. Buyer power • Ability of one or more buyers, based on their economic • importance on the market in question, to obtain • favourable purchasing terms from their suppliers

6. Competition concerns arising from buyer power • Constant price erosion to level where lack of incentive • for suppliers to invest • Elimination of suppliers, wholesalers, smaller retailers • Erosion of quality and choice for consumer

7. Own label evolution • From low cost alternative to branded goods to competing • on quality and innovation • Driven by retail competition - need to enhance retailers • brand to retain customer loyalty

8. Competition concerns from own label supply • Access to information of suppliers - product launches, pricing • Look-a-likes free riding on manufacturer’s investment • Discrimination in favour of own products

9. Competition authorities’ approach to date • Consumers benefit from buyer power so long as intensive competition exists at retail level since this ensures benefits are passed on • Unwilling to prohibit retailer practices that potentially offer efficiency benefits even if they serve to reinforce buyer power

10. Other remedies / approaches • Prohibition on predatory pricing, price discrimination • Laws banning below cost sales • Laws on dependency in trade relations • Codes of practice • Zoning

11. But market power below dominance • Power of retailer in buying comes from sheer range and diversity of products stocked • For the supplier, the retailer represents a significant proportion of its overall sales; for the retailer, the • proportion may represent only a fraction of its turnover • Consumers are more inclined to switch brands if preferred brand is unavailable, rather than switch stores

12. Combination of buyer power and competitor role • Enhances buyer power • Weakens branded goods suppliers’ bargaining positions • Unique? Packaged holidays, pay-TV?

13. Category of Practices covered by Supermarkets CoP Payments for access to shelf space Imposing an unfair imbalance of risk Imposing retrospective changes to contractual terms Imposing charges and transferring costs to suppliers Additional categories of practices found to distort competition Imposing conditions on suppliers trade with other retailers Applying different standards in different suppliers Restricting suppliers access to this market Requiring suppliers to use third party suppliers nominated by the retailer UK supermarket practices related to retailers with suppliers

14. Competition law remedies • Abuse of single firm dominance - local markets, tying consumers? • Abuse of collective dominance - Air Tours test to be met • Horizontal agreements - buying groups (Auchan / Casino) • Vertical agreements - access to competitor information; parallel networks (Hollywood Studios)

15. Quasi-competition law remedies • Codes of practice • Significant market power (telecoms)? • Abuse of economic dependence (22% rule)?

16. Abuse of economic dependence • Undertaking in position to determine excessive imbalance in rights and obligations in its business dealings with another • Specific contractual relations • To be evaluated in light of the possibility to find alternative outlets • Abuse may consist of: • Refusal to sell or buy • Imposition of unjustifiably burdensome or discriminatory contractual conditions • Arbitrary interruption of commercial dealings

17. Conclusion • Issue acknowledged by authorities - competition law and • quasi-competition law remedies • Balance may be tipping to retailers • Market power below dominance • Where consumer detriment, further development of tools • where competition law does not apply