© 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_17
Prager Dreifuss Ltd., Berne, Switzerland
Bernhard C. Lauterburg
This report addresses the characteristics of competition on the food retail market in Switzerland and the legal framework competition is subject to. As will be outlined below, the Swiss food retail market is largely dominated by two large retailers that are organized as cooperatives. Despite the high degree of concentration, acquisitions by the two large retailers have occurred in the past and were not considered to harm efficient competition. Furthermore, market entries of foreign retailers, namely the German Lidl and Aldi retailers, could be observed in the past.
While there are no provisions generally taking precedence over the Swiss Law on Cartels (the “LCart”)1 in the food retail sector, hence limiting competition, the food retail sector is affected by a multitude of norms limiting its competitiveness, such as high degree of protection in the agricultural sector (e.g., import quotas, regulations and agreements with respect to the price of milk on the manufacturer and supplier level), technical barriers to trade (e.g., labeling regulations) or higher labor costs.
17.2 The Food Retail Market in Switzerland
The food retail market is largely dominated by the two large retailers Migros and Coop with a combined market share of roughly 80 % on the retail market. Private labels account for a large share of the product range of both Migros and Coop. Other retailers include Aldi, Lidl, Denner (recently acquired and now owned by Migros), Spar, Primo/Vis-à-Vis, Volg and others. Switzerland historically has a high degree of concentration in the grocery retail sector. The two largest retailers are organized as cooperatives with a history dating back to the end of the nineteenth century (Coop, 1890) and early twentieth century (Migros, 1925).
In 2007, Accenture undertook a study of the Swiss retail market, which was referred to by the competition authorities in the case Coop/Carrefour in 2008. According to the study, a large majority purchase goods for daily use at either Migros or Coop and participate in their loyalty program. Swiss consumers attach great importance to accessibility and a choice of fresh products and regional products and such from ecological and sustainable production.2 While Aldi and Lidl pursued an aggressive market entry strategy, recent research by Credit Suisse reveals a slowdown of their expansion within Switzerland but notes in the context of shopping tourism their strong position at the German–Swiss border.3 The combined market share of Aldi and Lidl, however, remains low, at 5 %.4
17.3 Legal Framework
17.3.1 The Law on Cartels
The LCart sets out the fundamental provisions on behavioral and structural control in order to prevent the harmful economic or social effects of cartels and other restraints of competition and for this purpose aims at promoting competition in the interests of a liberal market economy.5 The retail grocery sector is subject to the behavioral6 and structural provisions set forth in the LCart to the extent that there are no other statutory provisions, such as provisions that establish an official market or price system, taking precedence over the LCart. We are not aware of such provisions taking precedence over the LCart.7
To date, there are no per se prohibitions in a strict sense under the LCart, neither in relation to behavioral nor merger control. Hence, in each single case, the competition authority must establish the subjective and objective elements of the concerned provision and determine whether the conduct in question can be justified. The proposed amendment to the LCart, which is currently discussed in Parliament, provides for a directly effective prohibition of certain horizontal and vertical agreements (price fixing, agreement on quantities or territorial allocation) and a shift in the burden of proof from the competition authorities to the undertakings.
Pursuant to Article 45(1) LCart, the competition authority shall constantly monitor the status of competition. In this context, the competition authority may conduct informal market observations that may or may not result in a preliminary investigation (Article 26 LCart) or a formal investigation (Article 27 LCart). In a preliminary investigation, the competition authority may propose measures to eliminate or prevent restraints of competition (Article 26(2) LCart). While the details of market observations are normally not revealed, the competition authority releases information on the number of market observations and the products covered, such as in 2011 gluten-free products8 and whether it found any indications of potentially anticompetitive conduct. The outcome of preliminary investigations as well as formal investigations is published in a report or, respectively, a decision.
17.3.2 The Competition Authority’s Eyes on the Retail Grocery Sector
In the past, the competition authorities repeatedly examined the retail grocery sector on the occasion of concentrations involving the two large retailers Migros and Coop.9 In CoopForte,10 the competition authorities examined the structures on the supply market in the context of an alleged abuse of buying power by Coop.
With the high euro/CHF exchange rate, the passing on of currency exchange benefits to consumers has been placed on the agenda of competition enforcement agencies and consumer advocacy organizations. The Competition Commission even established a subsection on this issue on its website,11 and the Price Supervision Authority noted in a report that retailers—with some delays—largely pass on currency exchange benefits to consumers but that Switzerland for structural reasons will remain a nation with a high price level.12 Credit Suisse noted in their market research that the price level for grocery products decreased by 6 % in the last 3 years.13
17.4 Merger Control
The retail grocery sector is subject to the same threshold levels as all other industries. Accordingly, transactions are subject to notification if the undertakings concerned together reported a turnover of at least 2 billion Swiss francs, or a turnover in Switzerland of at least 500 million Swiss francs, and at least two of the undertakings concerned each reported a turnover in Switzerland of at least 100 million Swiss francs (Article 9(1) LCart). In addition to these numerical criteria, notification shall exceptionally be mandatory if one of the undertakings concerned has been held to be dominant in a market in Switzerland in proceedings under this Act in a final and nonappealable decision and if the concentration concerns either that market or an adjacent market or a market upstream or downstream thereof (Article 9(4) LCart). Currently, Migros is subject to this exception.14
17.4.2 Product Market
The product market comprises all those goods or services that are regarded as interchangeable by consumers on the one hand and by suppliers on the other hand with regard to their characteristics and intended use (Article 11(3)(a) MCO).15 Hence, authorities distinguish between a market for sales (downstream) and a market for supply (upstream).
On the downstream market, the authorities base their assessment on a range of products that typically include fast-moving consumer goods. According to the decision in Migros/Denner, the range of products would typically include food, near-food and nonfood products for daily use, with an emphasis the basis of a one-stop shopping approach.16 Excluded from the relevant product market were specialty and convenience stores,17 although it was not excluded that such store formats may have a certain disciplinary effect on traditional retailers.18 Also excluded from the relevant product market was “shopping tourism.”19
In Migros/Denner, the competition authorities noted that the retail grocery sector cannot generally be considered the only distribution channel for manufacturers of retail business goods; however, the competition authorities hitherto left open whether gastronomy, hospitals, specialty stores, convenience shops and exportation should be considered a part of the relevant product market.20
In Coop/Waro,21 Migros/Denner 22 and Coop/Carrefour,23 the following food product markets were defined on the upstream market:
dairy products, eggs;
bread and pastry products;
frozen food products;
traiteur/convenience (fresh and chilled);
basic foodstuffs/baking ingredients;
pet food/pet supplies;
In Migros/Denner, the competition authorities further had to determine whether the Migros-owned manufacturing businesses should be considered a part of the supply market.24 The competition authorities determined that retailers consider products from integrated and independent manufacturers as substitutes (although the Migros-owned industries are normally favored over independent manufacturers), for which reason the Migros-owned industries belong the to relevant supply market.25
17.4.3 Geographic Market
The geographic market comprises the area in which, on the one hand, consumers purchase and, on the other hand, suppliers sell the goods or services that constitute the product market (Article 11(3)(b) MCO).
Referring to EU practice,26 the competition authorities in Migros/Denner and Coop/Carrefour, as well as earlier in Coop/EPA, distinguished between a local market and a national market on the downstream market. The market radius of small retail stores was estimated at ca. 10 min, for medium retail stores at 15 min and for large-scale hypermarkets at 20 min.27 Although the competition authorities considered that the relevant geographic market is local from a consumer perspective, pricing and sales policy of the large retail chains are coordinated on national level; hence, competition for consumers occurs on a national level.
As regards the upstream market, the competition authorities considered that it is at least national with a possibility that for nonperishable goods not subject to local consumer habits the relevant geographic market could be international.
17.4.4 Competition Analysis
18.104.22.168 Clearance Despite High Degree of Concentration
Concentrations that are subject to notification may be prohibited or authorized subject to conditions and obligations if the investigation indicates that the concentration creates or strengthens a dominant position liable to eliminate effective competition and does not improve the conditions of competition in another market such that the harmful effects of the dominant position can be outweighed.28
In both Migros/Denner and Coop/Carrefour, the authorities noted that the conditions for collective market power by Migros and Coop were satisfied and that disciplinary effects from the German discounters Aldi and Lidl on the Migros/Coop duopoly should not be overestimated.29 The competition authorities determined that high market entry barriers existed in Switzerland. In Migros/Denner, the competition authorities distinguished among three types of market entry barriers: (1) structural entry barriers, (2) administrative entry barriers and (3) strategic entry barriers.30 As regards structural barriers, the competition authorities noted that establishing a new retail network would require considerable investments due to the already high density of retail stores in Switzerland and the multilingualism prevalent in Switzerland. As regards administrative barriers, the competition authorities particularly referred to strict zoning and planning laws, nontariff barriers (Swiss-specific standards and prescriptions on product declaration), the high degree of protection in the agricultural sector (import restrictions). As regards strategic barriers, the competition authorities particularly noted the limited availability of prime retail locations as well as possible imbalances on the supply market.
Despite high market entry barriers, low existing and potential competition, the competition authorities cleared the transactions involving Migros and Denner on the one hand and Coop and Carrefour on the other hand, however, subject to certain remedies:
In Migros/Denner,31 where Migros acquired the discount chain Denner, substantial behavioral remedies were imposed on Migros. E.g., Migros was enjoined from integrating Denner, hence was obliged to operate Denner legally and organizationally independent entity with its own policy regarding pricing, product range and sales, loyalty programs of both Migros and Denner could not be integrated and/or merged, both Migros and Denner were enjoined from jointly procuring goods intended for resale and Migros was enjoined from acquiring any other retailers in Switzerland. In addition, Migros was ordered to waive exclusivity in relation to any product suppliers. With respect to the notification requirement, Migros was put under an obligation to notify any concentration on the grocery retail market independent of the threshold amounts (Article 9(4) LCart).
In Coop/Carrefour,32 Coop was enjoined from acquiring any other retailers in Switzerland for a duration of 6 years, divest some of its retail space in certain areas. Same as in Migros/Denner, Coop was ordered to waive exclusivity in relation to any product suppliers.