© Springer-Verlag Berlin Heidelberg 2015Pierre Kobel, Pranvera Këllezi and Bruce Kilpatrick (eds.)Antitrust in the Groceries Sector & Liability Issues in Relation to Corporate Social ResponsibilityLIDC Contributions on Antitrust Law, Intellectual Property and Unfair Competition10.1007/978-3-662-45753-5_3
bpv Hügel Rechtsanwälte OG, Brussels, Belgium
3.1 Economic Background
3.1.1 Agricultural Production
Based on figures from 2007,1 there are approx. 190,000 agricultural and forestry operators/farmers in Austria. Due to the geographical scope of Austria, its structure is characterized by an above-average percentage of farmers who are (partly) foresters and mountain farmers. Structure-wise, the Austrian agricultural production is based on small farming. The average utilized agricultural area is 19 ha (compared, e.g., to EU’s top, the Czech Republic with 152.4 ha and also Germany with 55.8 ha). Only 40 % of the farmers, who are active in Austria, are full-time farmers.2
Also within processing, the Austrian food market seems to be characterized by small and medium-sized undertakings. Within Austria’s Top 100,3 only two undertakings are (partly) active in the processing of food. The biggest one is Agrana Beteiligungs-AG-Gruppe (with a turnover of approx. EUR 2.5 billion, it is ranked as the 34th biggest undertaking in Austria), which is an Austrian processor of agricultural commodities active in the segments Sugar, Starch and Fruit.
3.1.2 Grocery Retail
In 2010, 5,726 grocery retailers in Austria achieved a turnover of approximately EUR 17.2 billion (the 628 discounters are included in the total amount of 5,736 retailers).4
Rewe Group (Billa, Merkur, Penny, Adeg) is the market leader in Austria with a market share of approx. 34.6 %, followed by the Spar Group (Spar, Eurospar, Interspar, Maximarkt) with a market share of 29.2 % and Hofer/Lidl (representing the segment “discount”) with a common market share of 23.3 %.5 Austria therefore is within the top five in Europe concerning the amount of concentration of the grocery retail market.6
3.2 Legal Background
Austrian competition law, which—in its entirety—has to be applied to the grocery sector, includes a prohibition of anticompetitive practices.7 Only certain agreements and practices concerning the production, supply, storage and processing of agricultural products are excluded from the application of the Austrian Cartel Act if they do not include price fixing and if competition can be upheld.8
Besides general antitrust legislation, the Act on Local Supplies (“Nahversorgungsgesetz,”9 “NahVersG”) is a far-reaching national specific. In its Section 2, it is stated that suppliers, which offer different conditions to its resellers under the same conditions and without objective justifications, can be confronted with an injunctive relief claim of the discriminated reseller. Dominance of the supplier is not a precondition for submission of such a claim.
Additionally, Section 3 NahVersG prohibits any nondelivery as a retaliatory measure of undertakings based on injunctive relief claims of the discriminated resellers. Section 4 NahVersG obliges wholesalers to deliver to retailers if otherwise the local supply is threatened or if otherwise the competitiveness of the retailer would be essentially limited.
By introducing the NahVersG, the legislator especially focused on the food sector. However, the Austrian Cartel Supreme Court now clearly confirmed that the term “resellers” includes not only the food sector but also all undertakings that are not end users but that resell their (also processed) goods.10
3.3 Market Studies
3.3.1 Factual Background
The retail grocery sector was examined in a sector inquiry of the Austrian Federal Competition Authority (Bundeswettbewerbsbehörde, the “BWB”) in 2007 (“sector inquiry”).11
The sector inquiry was based on complaints by suppliers, following which the two biggest Austrian grocery chains (Rewe and Spar) allegedly used their buyer and negotiation powers to put substantial pressure on their suppliers, e.g. by forcing suppliers to agree in adverse prices, conditions and rebates. In detail, the claimants mentioned, e.g., arbitrary delistings and substantial cash benefits without any substantial service in return (e.g., listing fees, “wedding boni” (i.e., suppliers were obliged to pay extra money after mergers of retailers) or advertisement subsidies).
In several decisions, the Cartel Court and the Cartel Supreme Court confirmed that due to the (current) market situation and the various complaints, the BWB was entitled to initiate its sector inquiry.12
3.3.2 Outcome of Market Study
Due to its focus on the retailer’s buyer power, the inquiry exclusively concentrates on the retailer’s procurement market, while the retail market with regard to end customers was not part of the inquiry.
In detail, the inquiry
defined the relevant product and geographical market13;
outlined the term “buyer power”;
illustrated effects that are based on buyer power (e.g., “spiral effect”)
scrutinized in detail nine product categories/baskets, where the BWB saw indications that the respective segments were (specially) characterized by buyer power (“meat/sausages,” “poultry/eggs,” “bread (exclusively frozen products),” “dairy,” “soft drinks,” “hot beverages,” “basic foods,” “confectionary” and “beer”);
examined retailer’s behavior that can have adverse effects on the suppliers, such as listing fees, (retroactive) payments after new retail shops had been opened, advertisement subsidies, exclusive supply to retailers, or retroactive rebates.
The main conclusions drawn were as follows. The Austrian retail grocery sector is characterized by a high market concentration, high barriers to enter and (essential) buyer power. The market power varies among different product segments. In general, buyer power rises with the increase of the number of suppliers, the decrease of alternatives for the suppliers and the nonimportance of brands (e.g., in the meat sector).
Market power is not negative per se, especially if it results in efficiencies that are passed on to the end customer/consumer. However, buyer power can also result in a limitation of innovation and a variety of products. Additionally, the competitiveness of smaller retailers, who cannot rely on comparable economies of scales, decreases due to the buyer power of the main retailers. The BWB hereby explicitly mentions the “waterbed effect,” following which smaller retailers are suffering from the economies of scale achieved by the dominant retailers on both markets, the procurement market and the retail market itself.
3.4 Code of Conduct
The BWB published draft guidelines concerning resale price maintenance (“RPM”).14 After a legal introduction, the BWB presents in its draft guidelines a detailed but nonexhaustive “code of conduct.” It is hereby the intention of the BWB to provide some guidance for undertakings concerned, particularly for SMEs, in relation to RPM.
The draft guidelines are based on BWB’s investigations in the grocery retail market but refer in general to vertical agreements. The guidelines are currently under revision.15
The list itself refers not only to direct price fixing (agreement, conduct), but also rebates, trade margin neutrality or sanctions based on violation of the resale price are considered as being illegal. Concerning special offers/campaigns, the BWB follows a strict approach and stresses that only the retailer itself may decide on the duration, the date and the respective price offers.
Moreover, the BWB also focuses on feared horizontal effects. For instance, following the guidelines, retailers in general are not allowed to support price monitoring of suppliers (e.g., by reporting other retailers that offer products below the recommended price level). Also, the other way round, i.e. assistance of the supplier in the retailer’s price monitoring (e.g., by sending receipts to the retailers), is considered of being anticompetitive. The supplier may also not inform other retailers of planned campaigns or increases of prices of other competitors. Moreover, retailers and suppliers may not agree on “most favoured nation clauses” or a certain retail price level practiced by other retailers.
Concerning recommended retail prices, the BWB also provides some “white clause” examples: for instance, the supplier is allowed to reason its recommended price level and to illustrate which strategy and marketing is intended, unless this supports directly or indirectly horizontal coordination of retailers.
3.5 Competition Law Enforcement
Austrian competition law in its entirety has to be applied to the grocery sector. Especially in the last years, the grocery sector had been in the focus of the Austrian competition authorities.
3.5.1 Collusion Among Suppliers/Collusion Among Retailers/Horizontal Agreements
On the supplier’s level, in 2010, the BWB has brought a case to the Cartel Court accusing two sugar producers of market allocation concerning the German and Austrian sugar markets. The undertakings involved allegedly agreed to respect each other’s strongholds in the respective domestic markets. The case is still pending.
Furthermore, based on settlement negotiations between the undertakings concerned and the BWB, the Cartel Court imposed a legally binding decision of (in total) EUR 1.1 million against Austria’s leading breweries, Ottakringer, BrauUnion and Stiegl,16 in 2013. The fine was based on the brewer’s refusal to supply draft beer to cash and carry markets based on “hygienic reasons.” As a consequence, cash and carry operators were not to be able to enter the market for draught beer. Furthermore, the price for draft beer was far above the price for bottled beer.
With regard to horizontal aspects between grocery retailers, the Cartel Court imposed a fine of EUR 20.8 million on grocery retailer Rewe. 17 While the fine, which was based on a settlement, mainly focused on vertical aspects, also some horizontal elements (alleged “hub and spoke” agreements between retailers via its suppliers) were covered by the settlement/fine. Details were not disclosed.
Similarly, in the current proceedings at the Cartel Court against SPAR, the proceedings are mainly based on alleged infringements of cartel law with regard to contracts of SPAR and its suppliers. However, the BWB also issued indirect horizontal coordination (i.e., coordination between retailers via their suppliers) in its request for fine.
In another recent decision, the Cartel Supreme Court came to the conclusion that the email correspondence between a producer and a retailer, on which the BWB based its request for an inspection, was sufficient to constitute a reasoned suspicion concerning vertical and horizontal competition infringements.18 In substance, the argument of the producer that it was too small to enforce retail prices was rejected, as even (missing) economic significance of a participant cannot eliminate an existing suspicion concerning cartel agreements. The Courts therefore granted the request for an inspection.