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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.