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Germany: Federal Cartel Office bans food retail giant EDEKA from squeezing suppliers, Edeka goes to Court

    • Competition, EU and Trade
    • Food and drink - Competition

    12-08-2014

    The German Federal Cartel Office (“Bundeskartellamt”, BKartA) has issued a decision stating that attempts by Germany’s largest supermarket, EDEKA, to force suppliers to grant it so called “wedding rebates”, in the form of additional payments and benefits, following its acquisition of Plus in 2009 were abusive and unlawful. 

    After a five-year investigation, BKartA’s decision states that EDEKA "violated" Germany's Anzapfverbot law, a specific law which aims to protect suppliers against buyer power and prohibits a retailer from requiring suppliers to grant it certain benefits "without any objective justification".[1]  EDEKA has challenged this ruling and filed a complaint to the Düsseldorf Court of Appeals (“Oberlandesgericht”, OLG Düsseldorf).

    Under the German Act against Restraints of Competition (“Gesetz gegen Wettbewerbsbeschränkungen”, GWB), dominant undertakings may not use their market position to require undertakings to grant them advantages or benefits without any objective justification (known as the prohibition of “tapping”, “Anzapfverbot”).  This ban also applies to non-dominant undertakings on which other undertakings “depend in such a way that reasonable possibilities of resorting to other undertakings do not exist” (so-called “relative market power”).

    EDEKA completed its takeover of rival supermarket chain, Plus, in 2009 and integrated the 2,300 Plus branches into its own discount chain, Netto.  Although negotiations with suppliers concerning terms and prices for 2009 had already been completed, EDEKA approached over 500 suppliers again, demanding special conditions including substantial discounts and payments. In particular:

    • discounts based on a “best value comparison” between terms for Plus and EDEKA for specific items, choosing the most favourable difference which applied at one out of three different reference dates in the past.  EDEKA also insisted that such discounts be extended to similar and equally-priced products from those suppliers, even if such products had not been sold to Plus at all;
    • extension of payment terms so EDEKA could benefit from the most favourable terms of either Plus or Edeka;
    • a “synergy bonus” of 0.5% of the aggregate sales to EDEKA and Plus to compensate (alleged) synergy effects for the suppliers,
    • a “partnership compensation” for 2009 and 2010 of 4% of sales to Plus as a contribution to modernisation of Plus shops.

    Documents found at EDEKA’s premises suggested that these discounts and payments from suppliers were intended to help EDEKA fund, in part, the acquisition of Plus.

    Following a complaint by the “Markenverband”, an association of suppliers of branded products, the BKartA started its investigation and performed unannounced inspections at the offices of EDEKA, and also analysed information provided to it as part of the original merger notification of the EDEKA/Plus transaction.  REWE, EDEKA’s most powerful retail rival, provided comments on the BKartA’s preliminary assessment. 

    The BKartA’s investigation into EDEKA’s conduct lasted 5 years.  Because of the various novel issues, the BKartA abstained from imposing a fine and merely examined the procedure for declaring EDEKA’s behaviour unlawful.  Due to the number of products, suppliers and markets involved, the BKartA limited its investigation to the buying market for sparkling wine.  It found that the major suppliers, none of which had a particularly strong market position, were all dependent on EDEKA, since they sold more than 80% of their production to food retail trade and lacked alternatives like direct sales, export or sale to specialised shops for wines and liquors.

    The BKartA then assessed the claims of EDEKA for these discounts and payments on a case by case basis examining whether (i) there was an objective justification or objectively-related quid pro quo for each claim; (ii) whether the claim and its amount were plausible for the supplier; and (iii) whether the claim was reasonable in relation to its reason or the quid pro quo

    Following its investigation, the BKartA held that the requests made by EDEKA, described under paragraph 1 above, were unreasonable, and noted:

    • the “best value comparison” was one-sided in EDEKA’s favour because of the number of possible reference dates.  There was no justification for extending the comparison to products Plus had not purchased.  The “best value comparison” forced suppliers in some cases to concede EDEKA rebates ten times higher than the original terms agreed with Plus;
    • payment terms longer than the time usually needed for reselling the respective products were doubtful;
    • there were no appreciable synergy effects of the EDEKA/Plus merger for the suppliers;
    • it was the retailer’s, not the supplier’s task, to modernise shops.

    It was easy for the BKartA to reject arguments made by EDEKA and REWE that the discounts and payments made by the suppliers benefitted end-consumers, as internal EDEKA documents suggested that these payments would contribute to EDEKA’s external growth, rather than being used to help reduce prices to end-consumers.  The BKartA also held that the “prohibition of tapping” may protect suppliers and not merely competitors of the strong buyer.

    In a statement on its website, Andreas Mundt, president of the BKarta, said: "After its takeover of the Plus stores in 2009, EDEKA demanded so-called "wedding rebates" from dependent suppliers. We are currently assuming that this constituted an abusive practise insofar as EDEKA demanded benefits from its suppliers without an objective justification."

    He added: "The decision sends out an important message to the food retail sector. Competition law sets limits to the freedom of action of powerful companies. Where the market position of a food retailer in the procurement markets is so strong that suppliers are dependent on it, as is the case with EDEKA, the retailer must not induce its suppliers to grant it benefits without any objective justification. Our decision helps to maintain effective competition and thus protects smaller competitors, suppliers and consumers. The proceeding contributes to establishing, also for the future, the borderline between "tough negotiations", which are admissible under competition law, and inadmissible practices used by powerful retail companies."

    The BKartA decision and possible rulings of the OLG Düsseldorf and later the Federal Court of Justice (“Bundesgerichtshof”, BGH) are likely to provide guidance on whether suppliers should be protected by the prohibition of tapping, and what “advantages without any objective justification” are, as opposed to legitimate “tough negotiations”.  Apart from a BGH decision back in 2002 (24 September 2002, Case KVR 8/01 – Metro/Allkauf) on retroactive rebates required by a retailer due to a “best value comparison” following the takeover of a competitor, there is almost no case law on this point.

    The European Commission has encouraged member states to look for ways to improve protection of small food producers and retailers against potentially unfair practices of much stronger trading partners, but to date refrained from regulatory action at EU level.  The BKartA is already scrutinising food retail trade by way of a sector inquiry; it is about to analyse the results of negotiations between suppliers and buyers.  The impact of these initiatives, as well as the outcome of judicial review proceedings now launched by EDEKA, has to be seen. German Parliament has, by Act of 22 July 2014, in force since 29 July, implemented the late payments directive of the EU and added rules for payment terms in general terms and conditions (“Allgemeine Geschäftsbedingungen”, AGB).



    [1] There is no equivalent to the Anzapfverbot law in European Union competition law.

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