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  • NEGOTIATIONS WITH RETAIL ALLIANCES/ BUYING GROUPS A practical guide under competition law

    Dr Michael Bauer

    AIM Industry Trade Meeting 10 March 2015

  • Some general remarks slide 3

    When are co-operations between retailers not allowed? slide 4

    What are the borderlines for retail alliances/buying groups in negotiations with suppliers?

    In general . slide 13

    In specific cases slide 22

    Overview

    2

  • A typical lawyer's answer: it all depends

    Competition law is not the same European wide

    Competition law is not equally uniformly by authorities

    The law and its application develops slowly into the right direction

    More advanced jurisdictions: France, Germany, Italy, UK

    Less advanced jurisdictions: EU, Belgium, Netherlands, Switzerland

    Between safe harbor and stormy waters

    Retail alliances/buying groups are usually permissible but operate in legal grey zones

    Assessment often requires in-depth analysis

    A guideline is just a guideline

    A general warning

    3

    Some general remarks

    it cannot replace legal advice in the individual case

    Negotiations with alliances/buying groups | 10 March 2015

  • 4

    When are co-operations between retailers not allowed?

    Negotiations with alliances/buying groups | 10 March 2015

  • Merger Control

    Prohibition of anti-competitive agreements

    5

    Legal framework

    Retail alliance/buying group is established in corporate structure

    Members take over certain stake in entity

    Members' turnover exceeds certain thresholds

    Creation of retail alliances/buying group must comply with the general prohibition of anti-competitive agreements

    Not relevant in case of existing alliances/buying groups

    Legally: Same standard EU wide (plus CH)

    In practice: Application by national authorities differs

    Ex ante control by competition authority

    Self assessment, no ex ante authority control

    Possibly in future : notification requirement in France

    IF:

    Negotiations with alliances/buying groups | 10 March 2015

  • If retailers are no competitors on retail and purchasing market: no issue

    6

    Prohibition of anti-competitive agreements

    In practise creation of retail alliance/buying Group is usually permissible if certain rules are observed

    If retailers compete only on purchasing market: no issue unless market share on retail market > 40%

    Rule of

    thumb

    If retailers compete on retail market: detailed assessment necessary

    If the creation is permissible, retail alliance/buying group may perform all regular functions

    Excessive coordination

    Abuse of buyer power

    Unfair trading practise

    Exception:

    Negotiations with alliances/buying groups | 10 March 2015

  • 7

    Detailed assessment

    Safe harbor rule The combined market share

    does not exceed 15% on all purchasing market(s)

    The combined market share does not exceed

    15% on (all) retail market(s).

    Outside the safe harbor prohibition possible if:

    The members compete on a retail market

    The members have high combined market shares on a retail markets

    The alliance/buying group comprises "regional top dogs"

    Other buying agreements exist in the market (network effects)

    The alliance/ buying group includes a market leader

    The alliance/buying Group itself has buyer power (e.g. ability to request unreasonable benefits from the supplier)

    Negotiations with alliances/buying groups | 10 March 2015

  • Loi Macron Approved by the French National Assembly

    Expected to be enacted in summer 2015

    New powers for competition authority

    If retailers

    hold a dominant position

    have a market share of more than 50% and

    cooperation raises competition concerns

    8

    National peculiarities: France

    Mandatory notification at least two months prior to implementation of buying alliance if members aggregated turnover exceeds certain thresholds

    ADLC may order the buying group to modify, complete or terminate all agreements and decisions as well as disposing of assets

    Negotiations with alliances/buying groups | 10 March 2015

  • 9

    National peculiarities: Italy

    Centrale Italiana

    Investigation re buying group alliance established by COOP, DESPAR, GARTICO, DISCOVERDE and SIGMA.

    Risks for competition

    Purchasing market: Decrease in capacity to compete for suppliers. Could lead to reduction of the variety and/or the quality of products and innovation and investment initiatives.

    Retail market: Risk of the coordination of sales strategies and the decrease in incentives to compete.

    Exchange of commercially sensitive information between the members (risk of collusion).

    Immediate liquidation of Centrale Italiana but replacement by limited agreements between some (not all) of the members.

    Authority accepted the commitments and closed investigation without imposing any sanction in September 2014.

    Commitments

    Negotiations with alliances/buying groups | 10 March 2015

  • Three years investigation, report from 2014

    200 manufacturers and 21 retail companies investigated, 7 sample product categories

    Econometric analysis of approx. 3,000 negotiations

    Assessment of buyer power with a view to

    merger control proceedings assessment of buying groups abuse of (relative) buyer power cases

    Data gathering and gaining new insights

    NOT: to answer the question of whether there is a problem of buyer power in the German food retail

    10

    National peculiarities: Germany

    Sector inquiry food retail

    Target

    Negotiations with alliances/buying groups | 10 March 2015

  • Only 6% of products do have potential for "must have" items

    EDEKA, REWE and Schwarz are bottlenecks for branded products

    Leading retailers are in a stronger bargaining position than the manufacturers and have a significant structural advantage over their smaller competitors

    "even high-volume suppliers can have relatively weak bargaining power"

    11

    National peculiarities: Germany

    Outcome re market

    Negotiations with alliances/buying groups | 10 March 2015

  • Abuse of buyer power

    Many indications suggest that at least Edeka, Rewe, Schwarz Group and Aldi are addressees under the control of abusive practices

    New type buying groups

    No longer merely represent a time-limited bundling of purchasing volumes, but must be seen as part of the concentration process taking place on the sales market

    Large food retail companies increasingly gain substantial and direct influence on the smaller competitors from which it is almost impossible for them to break free

    Effects on the sales and procurement markets will be examined in future cases

    Starting point 15% ms in markets affected

    Smaller partner's market position in the regional sales markets

    Degree of alignment of the cost structures

    Additional agreements, joint private label etc

    Network effects resulting from the participation in different buying groups

    Effects from information drain in case of switching

    12

    Outcome re Buying Groups

    Note: German Competition Authority already raised concern as regards the buying group in Rewe/Wasgau case (2011)

    National peculiarities: Germany

    Negotiations with alliances/buying groups | 10 March 2015

  • 13

    What are the general borderlines for retail alliance/buying groups in negotiations with suppliers?

    Negotiations with alliances/buying groups | 10 March 2015

  • 14

    Not the same legal standard European wide

    Prohibition of anti-competitive agreements or information exchange

    Abuse of buyer power

    Prohibition of abuse of dominance

    Prohibition of abuse of dependency

    Unfair trade practices

    Codes of Conducts

    Same legal standard European wide

    Specific concept under German law

    Excessive coordination Same legal standard European wide

    Approach by authorities largely the same

    Approach largely the same

    Specific concept under French law and Italian law (for food products)

    Food Supply Chain Initiative, UK Grocery Code, Belgian CoC

    Partly only soft law

    Negotiations with alliances/buying groups | 10 March 2015

  • Negotiations with Retail Alliances | 10 March 2015 15

    Which law applies?

    Effect-based approach

    The competition law rules of a country apply whenever effects of an agreement or conduct occur in the respective country

    If an European Retail alliances comprises retailers from Belgium and France,

    which operate shops in Belgium, France and Italy, negotiates with a supplier located in Germany,

    the laws of Belgium, France and Italy apply.

    Example:

  • 16

    (Up to) three different legal borderlines

    Prohibition of anti-competitive agreements or information exchange

    Abuse of buyer power

    Prohibition of abuse of dominance

    Prohibition of abuse of dependency (Germany)

    Unfair trade practices

    In general if aggregated market share exceeds 40%

    EDEKA case (see excursion)

    Excessive coordination Coordination within retail alliiance/buying group may not go beyond

    regular functions No Gos: cartel agreement