Following a reference from the Secretary of State
in December 1998, the Competition Commission’s report into
the supply of impulse ice-cream in the United Kingdom was published
on January 28. The report concludes the third monopoly
investigation into the impulse ice-cream market undertaken by the
Monopolies and Mergers Commission/Competition Commission since
1994.
The Competition Commission made four principal
findings in relation to the three manufacturers whose annual
turnover in the impulse ice-cream market exceeds £10 million,
namely Birds Eye Wall’s (owned by Unilever), Nestle and Mars.
The Competition Commission found that the following activities
operated against the public interest:
(a) arrangements made by Wall’s for freezer
exclusivity agreements with retailers,
(b) arrangements made by Wall’s, Mars and
Nestle for outlet exclusivity arrangements with retailers,
(c) the offering to retailers by Wall’s of
retrospective bonuses and price incentives, as well as the system
of unpublished discounts,
(d) the establishment of an exclusive distribution
system by Wall’s for a considerable part of its sales and
deliveries, as well as the sale of products to independent
wholesalers on terms below the cost of its own distribution system
and below the level necessary to allow independent distributors to
remain economically viable.
The Commission concluded that the use of an
exclusive distribution system by Wall’s adversely affected
competition between distributors, which then affected the ability
of manufacturers to supply their products to retailers. The system
of retrospective bonuses (ie bonuses that are applied to all
purchases, not only those made after a volume threshold has been
reached) also adversely affected the ability of the other
manufacturers to compete as the system provided incentives for
retailers to purchase all their ice-cream from Walls.
The systems of freezer and outlet exclusivity
practised by all three major manufacturers were considered by the
Commission to adversely affect competition by making it difficult
for other manufacturers to gain access to retail outlets. However,
in the case of Mars and Nestle, the two smaller manufacturers, the
Commission felt that benefits of freezer exclusivity outweighted
the adverse effects in helping them to compete successfully with
Wall’s.
The Commission concluded that as Northern
Ireland’s ice-cream market is organised and operated on a
different model, the conclusions of the inquiry would be limited to
Great Britain.
The Commission’s conclusions, as adopted by
the Secretary of State, are as follows:-
(a) Wall’s, Mars and Nestle to be prohibited
from making new outlet exclusivity agreements. Current agreements
will be allowed to run their course. The ban will not apply to
seasonal kiosk or van agreements until 1 January 2003.
(b) Wall’s to be prohibited from making
agreements which reserve more than 50% of freezer display space or
storage space to Wall’s products. Kiosks and vans to be
exempt until 1 January 2003.
(c) Wall’s to be prohibited from offering
retrospective bonuses or rebates.
(d) Interim measures to require Wall’s to
supply independent wholesalers on terms which will give them a
discount of no less than 22.5% of the gross sales value of the
order.
Undertakings in relation to the adopted conclusions
are to be sought by the DGFT by 31 March 2000.
The Commission also recommended that Wall’s
be prohibited from distributing its own products, except to
national accounts. The Secretary of State did not adopt this
conclusion on the basis that stopping a company from distributing
its own goods would be too drastic a step to take.
However, in relation to the distribution issue, the
Secretary of State plans to consult interested parties before
making a final decision. The principal idea suggested by the
Secretary of State is the setting of minimum terms of supply, to be
reviewed by the OFT. These terms would restrict the right of
Wall’s to refuse to supply retailers also selling other
manufacturers’ products. Comments on the terms of supply
should be made to the DGFT by 31 March 2000.
(DTI Press Release P/2000/57)