European Commission Fines Food Sector Giant

Tara Kelly, Head of Competition, Antitrust & Foreign Investment, considers the significance of a recent decision to fine Mondeléz International for restricting cross-border trade within the EU. In addition, Tara provides insights into the case, the legal framework, and the potential implications for businesses operating in the EU.

As the EU’s competition watchdog, the European Commission (the Commission) plays a crucial role in protecting undistorted competition. Against the backdrop of cost-of-living and inflationary pressures, the Commission, like national competition authorities, is particularly focused on the food sector. In this context, the Commission recently imposed a significant fine on Mondeléz International, a multinational food conglomerate, for breaching EU competition law. We explore the key aspects of this case.

Background

Mondeléz International, headquartered in the United States, is a major player in the global food industry. The company owns well-known brands such as Cadbury, Oreo, and Toblerone. It distributes its products using traders, brokers and exclusive distributors. The Commission accused Mondeléz of engaging in anticompetitive behaviour by restricting cross-border sales of its products within the EU.

Specifically, the Commission claimed that Mondeléz prevented distributors from selling its chocolate, biscuit and coffee products across national borders. This action hindered competition and limited consumer choice. The Commission found that Mondeléz engaged in 22 anticompetitive agreements by:

• Limiting the territories or customers to which wholesalers could sell Mondeléz’ products, and
• Preventing exclusive distributors from responding to sales requests from customers in other Member States.

The Commission further found that Mondeléz abused its dominant position in certain national markets by refusing to supply chocolate to a wholesaler in Germany and ceasing the supply of chocolate in the Netherlands. The European Commission’s investigation revealed the company’s conduct led to pricing differences between Member States of between 10% and 40%, sometimes even more.

Substantial penalties

The Commission has the authority to impose hefty fines on companies for violating competition law. In Mondeléz’ case, the Commission imposed a fine of €337.5 million. Margrethe Vestager, Commissioner for Competition, explained that the fine was set “in view of ...the value of Mondeléz' sales of the products concerned, the gravity of the infringement, the duration of the infringement and Mondeléz' cooperation. The Commission also took account of the fact that this type of behaviour had been sanctioned in the past”.

The fine imposed reflects a 15% reduction in return for Mondeléz' cooperation. This highlights the potential benefits of the Commission’s cooperation procedure. This requires companies to acknowledge the infringement and cooperate with the Commission’s investigation. In exchange, companies obtain a reduction of the fine they are required to pay.

Implications

The Mondeléz case sets an important precedent regarding cross-border trade restrictions. Companies operating in the EU must carefully assess their distribution agreements to ensure compliance with competition law. The Commission has a clear policy and track record of fighting territorial restrictions. As Vestager noted, “[t]he fact that [territorial restrictions] are illegal and violate competition rules is well established and companies need to be deterred from engaging in this type of illegal conduct”.

The case also represents part of a broader focus by the Commission on the food industry. Commissioner Vestager noted that the food retail industry “is a sector in which we have several ongoing investigations, such as the one in food delivery services and energy drinks”. She noted that “this case is about the price of groceries. It is a key concern to European citizens, even more obvious in times of high inflation where many are living in a cost of living crisis. It is also about the heart of the European project: the free movement of goods in a single market”.

National competition authorities (NCAs) share similar concerns about competition in the food sector and are also conducting investigations.

Steps to mitigate risk

Clients must stay vigilant to mitigate the risk of being subject to a competition law investigation, which may lead to fines, including by:

• Advising: Advise your company on compliance with competition laws, especially regarding distribution agreements
• Monitoring Developments: Stay informed about Commission and NCA decisions and other relevant competition law developments
• Internal Training: Educate employees on antitrust compliance and best practices

Conclusion

At the heart of this case is a concern by regulators of the cost of groceries varying significantly across Member States. According to the Commission, a key theme in its findings was a strategic choice by Mondeléz to partition the internal market artificially and thus hurt consumers in the form of higher prices and less choice. Companies should exercise caution before implementing any strategy designed to prevent or reduce cross-border intra-brand competition.

For more information and expert advice, please contact a member of our Competition & Antitrust Team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.