On 5 February 2021, the Turkish Competition Authority ("Authority") published its Preliminary Sector Inquiry Report Regarding Fast-Moving Consumer Goods (FMCG) Retailing ("Preliminary Report"). You can access the legal alert regarding the Preliminary Report here. In the last two years, the Turkish Competition Board ("Board") has launched or concluded numerous preliminary and full-fledged investigations in the FMCG sector. In addition to the Preliminary Report, the Authority prepared the Final Sector Inquiry Report Regarding Fast-Moving Consumer Goods Retailing ("Final Report") by taking into account the preliminary and full-fledged investigations carried out by the Board during this process and published this Final Report on its website on 30 March 2023. The Final Report is accessible here (only available in Turkish).
What does the report say?
The FMCG retail sector is among the sectors in which the Authority's enforcement has been most active in recent years. In the past, the Authority conducted another sector inquiry on FMCG retail which was published on 24 May 2012. As a result of the structural changes in the FMCG retail market, the acquisitions in the relevant period and as a natural consequence of the market dynamics, the Authority decided to conduct a new sector inquiry on FMCG retailing in 2017.
In the third year of its inquiry, the Authority published the Preliminary Report and presented significant findings on the sector. After the Preliminary Report, the Authority requested the views of many stakeholders to finalize the Final Report and put forward its initial observations on the sector. Ultimately, with the Final Report, the Authority, after a six-year process, provided detailed insight on the FMCG retail sector in Türkiye for the undertakings in the sector and the undertakings intending to enter the sector.
In this context, during the preparation of the Final Report, the Authority mainly covered the following topics: (i) the structure and development of the sector, (ii) the effects of the digitalization process on FMCG retailing, by also taking into account COVID-19, (iii) the definitions of the relevant product market and the relevant geographical market, which are important for the Authority's investigations regarding competition infringements and M&A transactions, (iv) turnover thresholds in M&A transactions, (v) the buyer power of organized retailers over suppliers, (vi) regulations in Türkiye and other countries regarding unfair trading practices within the scope of buyer power, (vii) competition law legislation within the scope of buyer power, and (viii) products with specific weights.
In this context, here are the key takeaways from the Final Report:
- While stating that the most effective method for the Board to make a case-by-case analysis when determining relevant markets, the Authority also drew attention to some significant factors. In this context, the Authority noted that it is difficult to argue that discounters, national supermarkets, and regional/local markets constitute different relevant product market at the retail level. For the product supply phase of the FMCG retail sector, the Authority stated that insofar as there are no drastic changes, "beverages, milk and milk products, meat and meat products, fresh fruits, vegetables, snacks and confectionery, oils, frozen products, legumes and bakery products, staple food, tobacco, personal care products, household cleaning products" may be used for the relevant product market definitions. With regards to the geographic markets, the Authority signaled that a narrower definition may be adopted rather than the district-based market definition, depending on the specific circumstances of the relevant case and competitive concerns. In terms of product supply, the Authority referred to the Board's precedents and concluded that the geographical market may be defined as Türkiye, unless there is a regional and/or local structuring.
- Even though the Authority stated in the Preliminary Report that it may be possible to implement sector-based turnover thresholds for M&A transactions in the FMCG sector, in the Final Report, the Authority decided not to implement this suggestion as this may hinder the growth of small retailers and prolong the transaction periods.
- Unlike the Preliminary Report, the Authority considered digitalization as a distinct topic in the FMCG retail sector in the Final Report. The Authority examined the impact of digitalization in FMCG retail on the main dynamics of the sector by emphasizing (i) the increasing number of players in the sector, (ii) the importance of digital marketing and social media, (iii) customer data and personalized marketing, and (iv) next-generation payment systems. In this context, the Authority underlined that digitalization in the FMCG sector contributes to the intensification or diversification of the communication cycle between the consumer and the producer and concluded that the growth power and potential of the ecosystem is significant, considering that the ratio of the digital FMCG retail ecosystem to organized retail increased from 1% to 7% between 2018 and 2021.
- The evaluations regarding the Chinese wall practices in the FMCG retail sector, which is one of the issues briefly discussed in the Preliminary Report, have also received a wide coverage in the Final Report. The Authority stated that the Chinese wall, which is used in M&A transactions and unbundling in economic liberalization processes, is based on restricting the communication between an undertaking or the relevant units of an undertaking or restricting or completely eliminating the communication (information flow) with another undertaking or the same unit of that undertaking with which a horizontal or vertical relationship is established. The Chinese wall practice is perceived as a "walling up" of the communication channels between the relevant (purchasing department) units or business lines of undertakings to limit or completely prevent potentially competition-sensitive exchanges of information between private label product manufacturers and retailers. The Final Report emphasized that the Chinese wall practices should be evaluated on a case-by-case basis and by reviewing the circumstances of the relevant case and the competitive dynamics of the sector.
- The Authority also provided information regarding the Board's recent decisions, which were not mentioned in the Preliminary Report. In this context, the Board's preliminary investigations, full-fledged investigations and merger control decisions in the last 10 years are summarized in the Final Report. In this context, since 2012, the Board has conducted a total of six preliminary investigations/full-fledged investigations, besides the resale price maintenance cases. Only one of these cases were fined by the Board. The relevant case is the Chain Markets1 decision. With a total fine of TRY 2.7 billion, this decision became the highest administrative fine imposed in an investigation in the record of Turkish competition law. Additionally, the Board rendered 13 decisions concerning resale price maintenance in 2022. The Final Report also provides quantitative data on M&A transactions. According to the Final Report, since 2012, 21 M&A transactions in the FMCG retail sector were notified to the Board. The Board granted conditional clearance to two of these cases, while the other transactions were granted unconditional approval.
- Overall, the Authority's findings were in line with those in the Preliminary Report in terms of the structure of FMCG retailing in Türkiye, the relevant market definitions in FMCG retail in terms of competition law, the evaluation of FMCG retail in terms of buyer power and private label products, and the regulations regarding buyer power.
- In the last section of the Final Report, the Authority made
some recommendations for the regulation of the FMCG retail sector.
Below are some of these recommendations:
- To prevent the abuse of buyer power in the FMCG retail sector, the Authority has proposed that regulations similar to the provisions in the Directive on Unfair Trading Practices adopted by the EU on 30 April 2019, which mainly aims to prevent the imbalance in bargaining power between suppliers and buyers of agricultural and food products (commercial retaliation by the buyer, transfer of the cost of investigating consumer complaints to the supplier, short notice cancellations of spoilable foods, unilateral agreement revisions by the buyer, transfer of the risk of lost and spoiled goods to the supplier, misappropriation of trade secrets by the buyer, etc.), be implemented.
- Through the draft proposal on amendments to the Regulation of Retail Trade, the Authority stated that unfair trading practices, such as unilateral agreement revisions by the buyer, transfer of the risk of lost and spoiled goods to the supplier, misappropriation of trade secrets by the buyer and transfer of the cost of investigating consumer complaints to the supplier, should be prohibited.
- The Authority emphasized that an independent body should be established and that there should be deterrent penalties to ensure effective and continuous enforcement of the regulations.
- The Authority stated that the clauses regarding the prohibition of the practices known as "difference invoice," which are frequently put forward by suppliers in investigations regarding the FMCG sector and which are imposed by retailers with a unilateral decision, may also be considered unfair trading practices.
- The Authority stated that permitting chain supermarkets to open new stores based on population criteria may have some anti-competitive effects and, therefore, it would not be appropriate to implement this. However, the Authority also stated that retailers within the same economic unity may be prohibited from opening a second branch within a specified distance.
- Finally, as in the EU practice, the Authority stated that preventing abuse of buyer power can only be possible by introducing a regulation into the legislation similar to the Directive on Unfair Trading Practices.
The Final Report provides important tips on the FMCG retail sector and regulatory recommendations for the sector. It can be seen that the Authority's interest in the FMCG retail sector in the past will continue after the Final Report is published. In addition, it can also be assessed that undertakings and the Board will benefit from this comprehensive inquiry at all relevant stages, particularly in preliminary investigations and full-fledged investigations.
1. Chain Markets, 28.10.2021, 21-53/747-360.
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.