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France: French Competition Authority Fines Pet Food Manufacturers Over € 35 Million For Resale Price Maintenance, Exclusivity Obligations And Prohibiting Passive Sales
On 20 March 2012, the French Competition Authority imposed fines
totalling € 35.32 million on three leading pet food
manufacturers: Nestlé Purina Petcare France SAS, Royal Canin
SAS and Hill's Pet Nutrition SNC. The undertakings were found
to have carried out, between 2004 and 2008, anti-competitive
practices in relation to their independent wholesalers on the
French markets for the sale of dry dog and cat food in breach of
Article 101 TFEU and its equivalent provision under French law.
These practices concerned sales by wholesalers through specialized
retail distribution channels including specialist shops (pet shops,
garden centers, agricultural self-service stores and DIY stores),
breeders and veterinarians.
In its decision, the French Competition Authority found that the
resale prices of products to be supplied to specialist shops
belonging to retail chains were negotiated directly between, on the
one hand, Nestlé Purina Petcare France and Royal Canin
respectively, and, on the other hand, the central purchasing bodies
of these retail chains. The prices would then be communicated to
the wholesalers, who would resell the products at the prices agreed
by the manufacturers with these purchasing bodies. On this basis,
the Authority noted that the wholesalers of Nestlé Purina
and Royal Canin were not free to set their own prices and that both
manufacturers had engaged in concerted practices with their
respective wholesalers aimed at fixing resale prices. With regard
to Nestlé Purina, the French Competition Authority observed
that the manufacturer had also engaged in similar practices in
respect of sales to both independent specialist shops and
breeders.
Secondly, the French Competition Authority found that both
Nestlé Purina and Royal Canin had granted de facto
territorial exclusivity to each of their wholesalers and that, as a
quid pro quo, these wholesalers had refused to sell products to
specialist shops and breeders outside their respective distribution
areas. These manufacturers were also found to have engaged in
concerted practices with their wholesalers restricting passive
sales by the latter outside their respective distribution
areas.
Thirdly, the French Competition Authority established that the
various exclusive rights and obligations agreed between
Nestlé Purina and Royal Canin and their respective
wholesalers had the effect of restricting competition. In addition
to territorial exclusivity, the practices at issue included
customer exclusivity and exclusive purchasing via discount systems.
Such arrangements ensured absolute separation of vertical
distribution structures, thereby preventing retailers from sourcing
from other wholesalers and passing on the benefit of lower
wholesale prices to consumers. By contrast, the Authority
considered that the specific exclusive arrangements put in place
between Hill's Pet Nutrition and its wholesaler, Oxadis, could
benefit from the then applicable Vertical Agreements Block
Exemption (Regulation No. 2790/1999) and therefore did not restrict
competition insofar as the market share of Hill's Pet Nutrition
did not exceed 30%.
Lastly, the French Competition Authority found that Hill's
Pet Nutrition, which used five specialist "veterinarian
wholesalers" for the resale of its products to veterinarians,
had agreed with these specialist wholesalers that they would not
export its products from France.
When setting the level of fines, the Authority assessed the
overall seriousness of the practices implemented by the three pet
food manufacturers and the extent of any damage to the economy. In
the Authority's view, the economic damage was, on its face,
considerable and rendered potentially greater by virtue of the fact
that price elasticity of demand for pet food is low, due to
consumer loyalty to brands. However, as regards the territorial
exclusivity agreed between Hill's Pet Nutrition and its
specialist wholesalers, any economic damage was deemed to be
extremely limited, and perhaps non-existent, considering the fact
that the contractual clause was limited only to the veterinarian
sector and was never in fact applied.
The Authority also increased the fine imposed on Royal Canin by
25% on grounds of recidivism while at the same time granting
reductions in fines of 18% and 20% to Nestlé Purina and
Royal Canin respectively for not having challenged the facts and
for having made behavioural commitments in respect of the
undertakings' internal competition law compliance programs.
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