Ice cream, you scream…

04/06/15

As the hot season kicks off on our beaches we reminisce about a refreshing decision that the Catalan regional competition authority (ACCo) took last summer.

On 1 March 2012 Grupo Kalise Menorquina, S.A., an ice cream manufacturer, had complained against (i) IMPJB, the municipality department that manages Barcelona’s parks, gardens and its beaches, for granting Unilever España, S.A. (“Unilever”) exclusive rights to distribute ice cream to its 17 refreshment stalls on the beach and to sell its brand there; and (ii) Unilever for excessive pricing at such stalls.

IMPJB had tendered such exclusive rights in 1999 and again in 2006. The tender covered all 17 stalls for up to 7 years and was only open to bidders with more than 30% market share. Further to the award of the tender, IMPJB’s stall lease agreements barred other distributors and other brands than Unilever’s.

The Spanish competition authority (CNMC) submitted two comments, namely that the calls for tender were an expression of IMPJB’s ius imperii (sic); and that the relevant geographic market included approximately 750 licensed shops selling ice cream close to the beach.

ACCo defined the market as comprising only the 17 stalls; stated that IMPJB had acted for purely commercial reasons (namely to maximise profits from its stalls); found a continued abuse of dominant position since 2006, for IMPJB restricted both interbrand competition (through brand exclusivity) and intrabrand competition (through exclusive distribution to stalls); added an aggravating circumstance in that non-compliance of stall keepers with Unilever’s exclusive rights could entail termination of their lease; and fined IMPJB 100,000€.

Conversely, ACCo found Unilever’s prices to be perfectly in line with average market prices, and clearly below the maximum sales prices included in the stall lease agreements.

Both IMPJB and the CNMC (!) appealed ACCo’s decision, which calls for at least four reflections.

The first reflection is on ACCo’s market definition, which has a faint ring of the European Commission’s Masterfoods saga in the early nineties. Indeed, the IMPJB case also concerns a Unilever affiliate, as was Van den Bergh Foods Ltd. at the time; and what was then famously called ‘impulse ice cream’. However, this case is about the relevant geographic market. Regrettably, ACCo’s sole argument for defining a seventeen-stall relevant market is that ‘probably not all (sic) licensed shops around the beach would be a viable alternative, from the demand side, to buying the products at a beach stall.’

The second reflection is on the restriction of competition. Now obviously a seven-year exclusivity exceeds the five-year ceiling under the VRBER. Likewise, IMPJB’s call for tender did exclude manufacturers whose market share was below 30%… although we do not know on which market. Interestingly, a 2014 market research found nationwide market shares below 30% for both Unilever (!) and Spain’s other major producer, Nestlé’s affiliate Helados y Postres, S.A. – only the former, based near Barcelona, got anywhere near that threshold.

The real surprise, however, is that not a word is lost by ACCo on the economic effect of the restriction. We may safely assume that ACCo deems it to be appreciable, having defined a monopoly market and, hence, applying the Spanish equivalent to Article 102 TFUE. Yet does it make sense to consider exclusivity at 17 of IMPJB’s many stalls as a very serious infringement simply because Article 62(4)(b) of the Spanish Competition Act says so wherever an abuse is by ‘an undertaking that operates in a recently liberalised market; whose market share is close to monopoly; or which enjoys special or exclusive rights’?

The third reflection is on deterrence. Despite booming tourism, most beachgoers are still locals and most of them, unlike other EU citizens on the Mediterranean shore (or so we hear) actually pay taxes. Such taxpayers were paying market prices for their impulse ice cream and will now have to put up with a 100,000€ fine imposed on the city service that is in charge of Barcelona’s public parks and gardens. Who is deterred from what? Perhaps ACCo should simply have applied Article 63(2) of the Spanish Competition Act and fined the IMPJB’s Director up to 60,000€. Or else the legislator, aware of our impulse to buy ice cream, should listen to one learned friend and Commission Hearing Officer: ‘Imprisonment is a very effective deterrent’…

So what about the fourth reflection? Why, it is that of the sun on the waves of the Mediterranean Sea, regally rolling towards Barcelona’s beaches, which we invite you to visit. And which, incidentally, are not visible from the cells of our local prison.