US multinational Mondelēz has now received a fine from the European Commission regarding its attempts to restrict ‘parallel trade’ in the European continent.
The commission has fined the multinational €337.5m for its engagement in the restrictive practices, which it suggested could undermine competition within the bloc.
Specifically, Mondelēz was found to have engaged in 22 anticompetitive agreements or concerted practices, which was found to be in breach of Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’), as well as practices in breach of article 102 of the TFEU.
What has Mondelēz been found guilty of?
Mondelēz, the company which owns brands such as Cadbury, Oreo and Milka, has been fined for hindering the cross-border trade of its products including chocolate, biscuits and coffee products within the EU.
Mondelēz ventures into the future
Mondelēz is not only a producer of snacks, but an investor. Its venture capital arm, SnackFutures Ventures, invests in consumer packaged goods (CPG) start-ups, looking for companies aiming to ‘really disrupt’ in the world of snacks. It also invests in tech companies.
Specifically, it has found to have been limiting the territories or customers to which seven ‘wholesale customers’ (i.e. traders or brokers) could resell its products, including one agreement demanding that a customer raise prices for exports in comparison to domestic sales. These agreements and concerted practices took place, according to the EU, between 2012 and 2019.
Furthermore, it prevented 10 exclusive distributors replying to sales requests from customers in other member states without its permission.
Mondelēz was also in breach of article 102 of the TFEU. It refused to supply chocolates to a broker in Germany to prevent it from selling Mondelēz products in Romania, Bulgaria, Austria and Belgium, where prices were higher. In addition, Mondelēz ceased the supply of chocolates in the Netherlands to prevent the products from being imported into Belgium, where it was selling for higher prices.
What is the TFEU?
Mondelēz’ actions were found to be in breach of article one of the Treaty on the Functioning of the European Union (‘TFEU’). The TFEU is one of the two treaties that forms the basis of EU law, and sets out the organisational and functional details of the EU.
Article 101 restricts collusion between undertakings which could have an adverse effect on competition within the EU’s internal market. Article 102 prevents abusive behaviour by companies in a dominant position within a market, such as having an exclusionary affect on potential competitors.
These practices allowed Mondelēz to charge more for its own products. The commission believed this came at the detriment of EU consumers. Mondelēz received a 15% fine reduction for its cooperation.
“Prices for food differ between member states. Trade over borders of member states in the internal market can lower prices and increase the availability of products for consumers. This is especially important in times of high inflation. In today’s decision, we find that Mondelēz illegally limited cross-border sales across the EU. Mondelēz did so to maintain higher prices for its products to the detriment of consumers. We have therefore fined Mondelēz €337.5 million,” said Margrethe Vestager, Executive Vice-President in charge of competition policy.
The European Commission opened formal proceedings against Mondelēz in January 2021.
What is parallel trade?
Parallel trade is when traders buy products in states where they are sold at a lower price, and go on to sell them in states where they are sold at a higher price. It provides consumers in these states with the opportunity to buy these products at lower prices than elsewhere.
By restricting where certain products can be sold, Mondelēz was engaging in a restriction of parallel trade. Restricting parallel trade is prohibited under article 101 of the TFEU (see boxout).
Restrictions on parallel trade are what is known as territorial supply constraints (TSCs). “TSCs can be described as territorial trading restrictions and practices imposed by large international manufacturers of food products that make it impossible for retailers and wholesalers to freely choose where to source products from across the EU single market,” Alexis Waravka, Digital and Competitiveness Director at retail association Independent Retail Europe, told FoodNavigator.
“In practice, international manufacturers use TSCs to force wholesalers/retailers to source from the national branch of the manufacturer’s choice where the latter also imposes a national price for its products.”
According to Waravka, the EU estimated in 2020 that TSCs cost EU consumers at least €14bn per year, and this was in only four researched categories.
The fine against Mondelēz, according to Waravka, depends on its ‘dominant position’ within the European market. There are, he told us, no restrictions on TSCs per se.
“Mondelēz enjoys high market power and a dominant position in various product markets across the EU/EEA. This situation provided the European Commission with the possibility to use its powers under EU competition law to sanction Mondelēz for having abused its dominant position through the imposition of unilateral practices restricting cross-border trade and for having imposed anti-competitive clauses on its buyers across the EU/EEA.
“Unfortunately, not all large international manufacturers are in a dominant position as legally defined under competition law (and required to be able to apply competition law) even though many enjoy high market shares.” Thus, the European Commission is limited in what it can do to investigate and sanction other TSCs. There is, Waravka told us, no other legal instrument with which to sanction them.
How did Mondelēz respond?
“Mondelēz International confirms it has reached a settlement with the European Commission concluding its investigation in relation to cross-border trade of products, formally launched in 2021. The decision relates to historical, isolated incidents, most of which ceased or were remedied well in advance of the Commission’s investigation. Many of these incidents were related to business dealings with brokers, which are typically conducted via sporadic and often one-off sales, and a limited number of small-scale distributors developing new business in EU markets in which Mondelez is not present or doesn’t market the respective products. This accounts for a very limited part of Mondelēz International’s European business,” a Mondelēz spokesperson told FoodNavigator.
“This historical matter is not representative of who we are and the strong culture of compliance for which we strive. At Mondelēz International, we place the strongest emphasis on integrity and respect for the laws of the countries in which we operate. We are firmly committed to the highest compliance standards, and we take the responsibility we have for our colleagues, customers, distributors and consumers very seriously. This is why we will continue to place emphasis on our overall compliance culture and have strengthened our annual mandatory compliance program to reflect learnings.
“The resolution of this case resulted in a liability of €337.5 million in total. We made an accrual for this in 2023. No further measures to finance the fine will be necessary.
“The conclusion of the case allows Mondelēz International to continue to focus on manufacturing products that consumers love and enjoy around the world.”