Price Fixing Probe
German Antitrust Authorities Investigate Mass Retailers
By Susanne Amann and Friederike Ott
On Thursday morning, German antitrust investigators launched a surprise search of the offices of some of the biggest names in the country's retail sector. A total of 56 German Cartel Office employees and 62 police officers visited the offices of retail giant Metro, Germany's largest supermarket chains, including Edeka, Rewe and Lidl, as well as the drug store chain Rossmann and pet supply store Fressnapf. Authorities also visited the offices of chocolate bar-maker Mars.
A man walks past a Penny Markt grocery discount store in Berlin. German antitrust officials are currently investigating 24 companies for possible price fixing.
Investigators have evidence that a total of 24 companies may have illegally agreed to price-fixing deals on coffee, sweets and pet food. They believe millions of consumers may have paid more for these goods than they should have.
For industry observers, however, the raids were less surprising. Late last year, the Federal Cartel Office imposed €160 million ($233 million) in fines against coffee producers Melitta, Dallmayr and Tchibo for entering into a secret agreement to coordinate price increases. American food conglomerate Kraft was also involved but avoided penalty because it turned itself in and cooperated with the competition authority during the investigation. Both Tchibo and Melitta have contested the fines, and the case is expected to go before the higher regional court in Düsseldorf.
Coffee and Chocolate
Some believe it was inevitable Germany's Federal Cartel Office would expand its investigations beyond the coffee market. "Anyone who talks to the Cartel Office about coffee is also likely to talk about chocolate," said Thomas Roeb, an industry analyst at the University of Applied Sciences Bonn-Rhein-Sieg. Cartel Office officials said, however, that there is no direct connection between the two probes, saying only there are "findings" from the previous investigation being used in the current matter. But it is also clear that the agency has been investigating some of the larger players in the field over other products for some time now.
In fact, the agency says that tips in the current investigation didn't even come from the coffee case. Investigators learned about a meeting of several sweets manufacturers and suspected a chocolate cartel had been forged. Ensuing searches at the Germany headquarters of Kraft in Bremen made the company nervous -- and officials confessed to the competition authority that illegal fixing had taken place.
Industry expert Roeb says it's not surprising that investigations are now focused on makers of sweets following the coffee investigations. "Certain product groups are particularly prone to price fixing," he says. There are high fluctuations in commodity prices, there's a relatively small number of countries that can produce the commodities and the number of producers is limited. "That makes the market clear and manageable," he says.
Attractive for All Involved
What's new in the current investigation, however, is the suspicion that both producers and retailers may have agreed to price fixing. "The vertical price fixing is unique" in this case, Cartel Office spokesman Kay Weidner said. Companies are allowed to set recommended prices, but it is illegal to agree to concrete prices. Antitrust investigators believe the 24 companies came to a deal on a minimum price for products. If the allegations are true, it would mean that both traders and companies adhered to that agreement, thus violating German competition law.
Such agreements are, of course, attractive for all involved as they guarantee both producers and retailers reliable prices and higher profits. Such arrangements are additionally attractive for retailers in that they can boost the sales of their own brands. "Merchants can price their own brands below the agreed upon prices for name brands without the fear that the name brand prices will follow," said one branch insider.
The companies involved were quick to pledge complete cooperation with the authorities. But behind the façade of equanimity, the branch is concerned -- particularly as a result of the penalties announced on Dec. 21 levied against the three coffee roasters. Those familiar with the market are convinced that the Cartel Office wanted to set an example. "With today's investigation, we wanted to make it clear that vertical price fixing are also in violation of antitrust law," said Cartel Office spokesman Weidner.
€4.8 Billion for a Cup of Coffee
Antitrust officials have indeed spent recent years reinventing themselves -- and they have begun focusing more closely on the retail branch. In addition to the coffee and sweets investigations, the Federal Cartel Office is also currently looking into various sausage producers as well as selected flour mill operators that are believed to have manipulated flour prices.
A 2000 law, allowing for those involved in price fixing to turn state's evidence and thus avoid penalty -- a regulation recently taken advantage of by Kraft Foods -- is giving antitrust regulators a boost.
One measure of the Cartel Office's recent success is the value of fines it has levied from year to year. In 2006, the antitrust authorities collected just €2.5 million in fines. In 2007, however, that number exploded to €114 million before more almost tripling in 2008 to €317 million. In 2009, following the penalties handed down to the coffee producers, the Cartel Office brought in over €400 million.
Such statistics are good news for those companies not involved in price fixing. And for consumers. According to German consumer protection groups, coffee drinkers in Germany paid a total of €4.8 billion too much for their morning jolt of caffeine from 2000, when the coffee producers began colluding, until the three companies were first searched in July 2008.
http://www.spiegel.de/international/business/0,1518,672167,00.html
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