News & Positions

Brands suggest adapting the rules governing joint purchasing to tackle new market realities

Brussels – 20 July 2022 – Joint purchasing activities between supermarkets have significantly increased in the past decade and reinforced the bargaining power of these retailers active in already highly concentrated markets. AIM, the European Brands Association, has submitted a series of proposed changes to the European Commission’s draft Horizontal Cooperation Guidelines (“draft HGL”) and R&D Block Exemption Regulation published on 1^st March 2022[1] to ensure that the revised framework enables a fair and level playing field for a competitive and resilient supply chain in Europe. 

The FMCG market has undergone substantial changes since 2010:  

• National retail markets are more concentrated than ever: between 2010 and 2019, the accumulated country share of the five biggest retailers in each national market across the EU rose from 73 to 78%. 
• Unburdened by access fees from gatekeeping retail alliances unlike branded products, private label products have now reached a market share of 40% in several markets in Europe,[2] enabling leading retailers to further their vertical integration. 
• Participation in gatekeeping retail alliances has expanded, with several retailers engaging in an extraordinary game of musical chairs across alliances,[3] as recent announcements illustrate.[4]  
• Reinforced bargaining power through the proliferation of cooperation agreements has crystallised the existence of “must-have shelves”: a manufacturer, regardless of its own size, cannot afford to be absent from the shelves of retailers holding strong market shares, while those can coerce even the strongest suppliers into accepting their commercial conditions. Already in 2014, the German FCO had warned that “in individual cases even large manufacturers with well-known brands can be exposed to the retailers’ bargaining power”.[5] 
• The dramatic increases of both the access fees charged and the number of collective delisting incidents and threats coordinated by gatekeeping retail alliances illustrate well the considerable bargaining power that large retailers have accumulated. 

This changed market context makes it even more necessary to re-assess whether gatekeeper alliances, which do not purchase themselves, should still enjoy the benefit of the rules meant to cover situations that “truly concern joint purchasing”. In particular, the long-held assumption that retail alliances lead to lower consumer prices, which cannot be substantiated simply by comparing apples with pears, as some retailers have attempted to do,[6] should not suffice to enjoy the said benefit.  

Instead, because retail alliances differ immensely from genuine purchasing groups in the way they operate and conduct business,[7] the HGL should distinguish properly between different forms of buy-side cooperation to fully capture the potential competitive risks associated with all forms of cooperation, without overestimating the potential for pro-competitive benefits. 

• The HGL need to clarify whether the collective negotiation of trading terms “truly concern joint purchasing” if the cooperating purchasers neither purchase together nor jointly negotiate the substantive terms of a supply agreement and condition their future purchases on the conclusion of a separate agreement under which they will act as suppliers rather than buyers. 
• The HGL need to focus on the relative bargaining power of the negotiating parties (i.e., the share of sales that each of the negotiating parties generates via the other party) in the relevant markets – not the size of the companies. While a single powerful retailer may represent more than 20% of a manufacturer’s turnover in a market, a manufacturer’s products may represent at most 1% – 2% of such retailer’s turnover. In that sense, a supplier typically loses more by losing access to a retailer than what a retailer loses by losing a supplier’s products. 
• The HGL must reflect the market reality of “collective purchase stops” - a purchase stop may overshoot by going beyond the scope of the joint purchase negotiation. A measure cannot be qualified as ancillary if it is disproportionate relative to the underlying main agreement.[8] In fact, such coordinated commercial actions are naked coercion measures akin to collective boycotts that, by their nature, distort competition and therefore restrict competition by object. The determinative criterion for the analysis of collective commercial actions, such as purchase stops, should be whether the collective action remains within the scope of, and proportionate to, the joint negotiation.