To ensure freedom of trade by all market participants is one of the statutory mandates of the Competition Act, 2002 (the Act) in India and this includes the right of a manufacturer to choose, not only its distributors but also the mode of distribution of its products. This fundamental premise has been reiterated in India by the Fair Market Regulator, the Competition Commission of India("CCI/Commission") in a recent decision, discussed here.
Can a manufacturer be compelled to provide equitable terms of business to an online distributor or to supply its most famous branded products to the distributor at par with existing offline distributors in all circumstances? Can competition law ensure competitive margins for a distributor by restraining selective distribution to its disadvantage by a manufacturer and does every distributor has a legal right to be provided fair, equitable and non- discriminatory terms of business by the manufacturer under the competition law? Another off shoot could be whether a manufacturer has a legal obligation to give parity in its business terms to both offline and online mode of distribution? More precisely, whether an online distribution platform can enforce parity in terms of supplies with other existing offline /physical modes of distribution of a manufacturer /supplier on its platform?
These are some of the questions which the CCI has recently considered in a case filed by an online B2B platform against Britannia Industries Ltd.("OP/Britannia") in the biscuit market in India. CCI, vide its order dated 16th June 2022 has dismissed the allegations of refusal to deal against the Britannia in the market for Biscuits in India.
The information in the case was filed by Hiveloop Technologies Pvt. Ltd., Bengaluru ("Informant") which is running a Business-to-Business ("B2B") online trade platform/marketplace with the name 'Udaan', which allows retailers and businesses to source merchandise from the manufacturers, brands, labels, importers etc. directly.
Background
Informant stated that among all Britannia's biscuit brands, 'Good Day' and 'Marie Gold' are the fastest moving and highest demanded in the biscuits segment and stated to be the Stock Keeping Units (hereinafter, 'SKUs'), and thus, are 'must have' stock for any distributor and contribute 80% of the Britannia total revenue. The Informant suggested the bifurcation of biscuits industry in three segments as 'mass segment biscuits (valued at below Rs. 100 per Kg.), mid-premium segment (valued at Rs. 100 per Kg.) and premium segment (valued at more than Rs. 100 per Kg.) and had averred that these segments are clearly distinguishable in terms of Section 19(7)(b) of the Competition Act, 2002 ( the Act) . Further based on this segmentation, the Informant suggested the relevant market as the "market for mid-premium segment biscuits in India". Informant quoted the data of A.C. Nielsen in the Forbes Cover Story and stated that Britannia wielded a market share of approximately 30.8% for FY 2017-18, 31.2 % for FY 2018-19, and 32.1% for FY 2019-20 in the broader biscuits market and submitted that Britannia hold significant market share to cause an appreciable adverse effect on competition (AAEC) in the market.
Allegations by the Informant
It was alleged by the informant that Britannia is providing the supply of its fast-moving SKUs in a very restricted manner to it .It was further alleged by the Informant that despite multiple rounds of discussions and meetings, Britannia categorically denied providing the Informant: (i) the requisite quantity of SKUs due to which the Informant was unable to meet the demand on its platform, (ii) the requisite quantity of cheaper/smaller quantity product variants for these brands that drive the maximum demand in the market, and (iii) access to SKUs for other Tier 1/Tier 2 cities where such products are high in demand which was a clear case of constructive refusal to deal on the part of Britannia, which is having an appreciable adverse effect on the market. The Informant also alleged that Britannia is not giving its products in geographical markets where informants supply network will create efficiencies in the market. It was alleged that due to the shortage of supply by Britannia the informant had to procure such products from the open market, which increased the final cost to the retailers, which further restricted the Informant's freedom to engage with SMEs on its platform.
Further it was alleged that not only did Britannia agree to supply only 50% of the demand raised by the Informant but also restricted its supplies to a list of cities proposed by it, which characteristically exhibited a very low demand and where Britannia had a comparatively lower presence. It was alleged that Britannia's treatment of the Informant was not only highly restrictive but also discriminatory, given that Britannia continues to fully fulfil its supply obligations to its other wholesale distributors. The existing arrangement being forced upon the Informant was, therefore, a clear case of refusal to deal, and such arrangement causes appreciable adverse effect on competition in India, which was in contravention of Section 3(4)(d) read with Section 3(1) of the Act.
Based on the above allegations, the Informant alleged that it had been subjected to Two-fold restrictions by Britannia:
- Refusal to deal in cities where there was high demand and hence, requirement for more B2B efficiencies
- Limited SKUs being made available for must stock items even for those Tier 2/3 cities that were proposed by Britannia itself.
Further. while referring to the impact of such conduct, it was submitted that due to non-availability of supplies of SKUs, retailers would fail to procure these products on the Informant's platform which was evident from an increasing number of null-search results. As a result, many retailers would abandon the platform altogether. The additional input cost borne by the Informant for securing supplies of Britannia's products to meet demand on platform, and denial of discount schemes by Britannia was creating effective barriers for the Informant to effectively compete and sustain in the relevant market on an equal footing with other distributors.
Britannia response
Britannia in its response submitted that informants had made self-contradicting statements, whereas on one hand Informant states that it is only a B2B platform, on the other hand, it alleged that Britannia's refusal to supply its products to it directly and compelled it to buy Britannia products directly from the open market.
It was disclosed by Britannia that there is a sister concerns/group company of the Informant, (Granary Wholesale Pvt. Ltd) engaged in B2B businesses and was listed as seller on the Informant's platform and was dealing with Britannia and this fact was not disclosed in the information. It was Granary with which Britannia was dealing and Informant was unknown entity for Britannia before gaining the knowledge of the information before CCI. It was further submitted by Britannia that Informant has no locus standi to raise any grievances arising out of a business relationship between Granary and Britannia.
Further it was submitted that there was no agreement between other distributors and Britannia to not deal with Granary/informant as envisaged under Section 3(4) of the Act. It was also submitted Britannia, as a manufacturer. has autonomy to choose its vertical partners/distributors and it had a robust network of distributors throughout the country and not dealing with the Informant did not cause or was likely to cause any AAEC in the market of Biscuits in India.
Analysis of the Commission
At the very outset Commission noted that the Granary formed an important part of the engagement with Britannia and the Informant never disclosed any fact related to the procurement of Britannia's biscuits for its platform in the Information and impressed upon the Commission that due to alleged conduct of Britannia, Udaan is compelled to procure Britannia's biscuits from open market in order to meet demand raised on its platform by the retailers.
On the issue of the Locus Standi of the Informant the Commission relied on the judgement of Hon'ble Supreme Court of India in the case of Civil Appeal No. 3100/2020 Samir Agarwal vs. CCI & Others and held that the locus of the informant/Udaan cannot be doubted but emphasized that Informant ought to have approached the Commission disclosing the correct facts pertinent to the case rather than waiting for Britannia to put facts on records. The following observations of CCI are pertinent in this context for future: "any party which comes before the Commission should disclose true and complete facts which is in its knowledge at the time of filing of the Information, more so when such Information becomes relevant in the context of some relief that may be availed of or any detriment that may accrue to any person. Such a requirement cannot be obviated by raising the plea of a single economic entity". ( Para 39).
More importantly , on the issue of the relevant market the Commission noted that though for the purpose of the analysis under Section 3(4) (d) of the Act, defining the precise relevant market is not necessary but still considered its previous decision pertaining to this market in Re: Tamil Consumer Products Distributors Association and Britannia Industries Ltd. And observed that when, at the distributors' and retailers' level, all kinds of biscuits, are available in a price/quality continuum, there is no occasion to segment the market further merely because some sub-brands of biscuits are more popular across consumers and, in the view of the Informant, are SKUs. Defining a narrow product market merely on the factors of popularity of a few sub-brands may not be appropriate to the facts and circumstances of the case. The Commission disagreeing with the Informant on the segmentation of the biscuits market held that prima facie the relevant market can be stated as the market for the biscuits in India.
On the issue of the market power of Britannia, acknowledging its vast network of distributors, as well as considering the presence of Britannia's reach throughout India on the strength of a wide distribution network, and considering its approximately 32% market share in the biscuits market, closely followed by its competitor Parle (approximately 27% market share), CCI observed that it cannot be said that Britannia does not have any market power.
However, on the allegations of abuse of the market power and specifically regarding the allegations regarding constructive refusal to deal and the same causing AAEC in the market, the Commission held that, the Informant, other than averring that there is an inter se arrangement between Britannia and its distributors to restrict the Informant from dealing with certain brands and biscuits of Britannia, has not provided any evidence and is a mere conjecture. Further, the fact that the Informant has been able to source the biscuits to some extent to fulfil the demand of retailers coupled with the fact that Britannia affirmed that it has not instructed its distributors not to deal with the Informant may tend to show that no vertical restraints have been imposed within the meaning of Section 3(4)(d) of the Act. Regarding the allegation that the absence of adequate supplies of the famous brands of its biscuits by Britannia to the Informant has caused AAEC in the relevant market, CCI held that in the absence of any specific allegation of any distributor of Britannia exiting from the market, no market foreclosure could be contemplated as alleged. The Commission also noted the presence of many other B2B online platforms like the Informant, such as Arzooo, Flipkart Wholesale, Amazon Business etc. which followed almost similar business model as that of the Informant and therefore, the Informant could not claim to have devised some unique business model.
Lastly, on the general issue the autonomy of manufacturer to choose its partners in business, the following observations of CCI are worth reproducing as these seem to lay down guidelines for future cases:
A careful balanced approach is, thus, required to deal with the issue, having regard to the fact that what is the ill (perceived or actual) that can be likely remedied. From a competition perspective, business decisions to engage or not to engage with a downstream entity such as the Informant has to be seen in the context of likely AAEC, should the upstream entity choose not to deal with the downstream entity. ...the Commission is of the view that there must be some autonomy available to the manufacturers to deal with their goods the way they want, in alignment with their business requirements. Nobody can ask for an absolute right to deal with a particular business. Similarly, there is no absolute right of refusal. This will depend upon the facts and circumstances of the case, even a dominant entity, at times, has the freedom to refuse to conclude contract based on objective justifications. .... free exercise of right of manufacturer may only be limited to the extent of making competition prevail in the market."
In the above context, the Commission considered the factors as enumerated in Section 19(3) of the Act and noted that there are apparently no barriers to entry either in the manufacturers' market nor in the distributor's market, considering the presence of large number of biscuit manufacturers (including foreign entrants in recent years) in the upstream and large number of distributors of Britannia in the downstream market. Moreover, there appears to be no existential threat or foreclosure as regards Granary and the Informant, considering that the Informant is an online B2B platform catering to multiple product segments across the country and is not significantly dependent on Britannia's products.
CCI also observed that the Informant has not been able to demonstrate prima facie that non-supply of certain brands of biscuits by Britannia has impeded competition in the distribution chain ..there was nothing to show that either the retailer or the end consumer have faced any supply constraints and therefore held that no positive direction can be given to Britannia to directly deal with the Informant . The Commission, mindful that a large distribution network provides more choices to retailers and consumers, held that it cannot stretch this concept too far to support establishment and survival of every downstream entity in the fold, having regard to the underlying product and the existing conditions in the market. Moreover, selective distribution is an industry practice and one of the business strategies adopted by businesses. This falls within the domain of reasonable autonomy given to any trade participant, which autonomy, however, is not absolute.
Finally based on the above reasoning, CCI concluded that Informant had not been able to demonstrate any exclusionary practice by the Britannia and accordingly directed the case to be closed under section 26(2) of the Act.
Comment: This decision by CCI, though may not be final as appeal may be filed against it by the Informant yet assumes significance in the present time when more and more manufacturers are opting for online distribution to supplement the existing offline distribution channels. CCI in this case has rightly accepted the fundamental premise that a manufacturer has a natural and legal right to select its mode of distribution subject only to the condition that while doing so it must not upset the prevailing competition in the market or cause AAEC in the relevant market. This case also seeks to cast a duty upon information providers/complainants before CCI to come clean and not suppress any vital facts in Antitrust proceedings.
Note: This article first appeared on the Antitrust & Competition Law Blog on 2 July 2022
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