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The Intermarché-Coca Cola dispute: Who’s the bad guy? An analysis of the retail distributor-supplier relationship

If you want to buy Coca Cola products in the supermarket Intermarché in France, you will arrive home empty-handed. Since the end of December, Coca Cola has refused to refill Intermarché’s stock, following a conflict [1] about Intermarché’s unwillingness to sell the whole assortment of Coca Cola’s products. In the summer, Intermarché communicated to Coca Cola that it would like to cut the current assortment by almost fifty percent due to the rise in popularity of healthy drinks. Intermarché justifies their decision to sell fewer soft drinks from Coca Cola on current numbers showing that last year the sale of carbonated soft drinks dropped with 3,2 percent [2]. In a letter to its personnel that was leaked, Intermarché claims that Coca Cola unilaterally decided to stop supplying its products. Coca Cola, on the other hand, has publicly stated [3] that the agreement between Coca Cola and Intermarché ended on the 21st of December and they simply put the delivery ‘on a hold’ until an agreement is reached. However, it is common practice that old agreements between suppliers and retail distributors are upheld as long as negotiations are ongoing. Lately, this practice is slowly deteriorating, remember the Colruyt – PepsiCo [4] dispute and the currently ongoing Colruyt – Douwe Egberts [5] dispute.

As to the background of the dispute, it is worth noting that both companies have strong positions in their respective markets. Coca Cola is the world-wide market leader on the market for carbonated soft drinks with a market share of around 50 percent, while Intermarché controls [6] 15 percent of the French market for supermarkets. From a competition law perspective, this raises several questions. Can Coca Cola force supermarkets to sell their entire assortment? Can Intermarché simply refuse to distribute part of the assortment? Can they justify this based on the current shift towards a more sustainable consumption pattern? Is Coca-Cola allowed to halt delivery? Both undertakings claim they can substantiate their arguments in court. This blog post takes a closer look at what those arguments might look like. In other words, who is the bad guy [7]?

So you’re a tough guy – Refusal to supply and contractual tying

Coca-Cola’s actions may bring to mind the doctrine on refusals to supply. As laid down in Article 102 [8] TFEU, an undertaking is not always allowed to make its business decisions entirely autonomously when it is in a dominant position. The first question to answer is thus whether Coca Cola is dominant in the relevant market. Although the relevant market needs to be assessed on a case-by-case basis, relevant guidance can be found in the Coca-Cola Commitments Decision. In that decision, the Commission has concluded that the relevant market is the national market for carbonated soft drinks (‘CSDs’). In the French market, Coca Cola “exceeded 40% market share and was more than twice the size of the market shares of the next competitor”. These conclusions were drawn more than 10 years ago, but based on current numbers, we can conclude that Coca Cola is still dominant [9] in the French CSD-market.

After determining that Coca Cola is dominant, the next question must be whether Coca Cola actually abused this dominance. In this dispute, Coca Cola refuses to supply an existing customer, Intermarché. Besides being famous for its market-definition, the United Brands [10] case also provides insight into the refusal to supply an existing customer. The Court of Justice (‘Court’) stated that “an undertaking in a dominant position […] cannot stop supplying a long-standing customer who abides by regular commercial practice, if the orders placed by that customer are in no way out of the ordinary.” However, the Court also points out that the dominant undertaking can protect its commercial interests as long as they are proportionate “taking into account the economic strength of the undertakings confronting each other”. Here, arguments can be made on either side. Coca Cola could argue that the orders placed were out of the ordinary. On the other hand, Intermarché could contend that the reaction of Coca Cola was disproportionate. Considering the facts of the United Brands case where the distributor was actively advertising a different brand, which does not appear to be the case here, it seems that Intermarché has the strongest argument. If ‘out of the ordinary’ means that the distributor, Intermarché, can never change their demand, this would lead to an unreasonably strict interpretation in favor of the supplier.

Besides the refusal to supply, the current practice of Coca Cola may remind antitrust lawyers of the abuse of contractual tying, which implies that—under certain conditions—a dominant undertaking is not allowed to make the purchase of one product conditional on the purchase of another product. In 2005 [11], the Commission had already spotted these issues and in response, Coca Cola had promised “not to impose any tying arrangements making the supply of any TCCC-branded cola CSD or TCCC-branded orange CSD conditional on the purchase of one or more additional TCCC-branded beverages.” However, 10 years later it appears that the same practice is still being maintained. Although tying might be a more practical approach to the abuse, it also raises a few questions. First, one can ask the question whether range of products is a single product or several products. Furthermore, the relationship between the supplier and the retail distributor might imply different purchasing practices than when consumers buy a product.

Just can’t get enough guy – Refusal to distribute part of the assortment and buyer power

At first glance, the question can arise whether the refusal to distribute part of the assortment by Intermarché is also an abuse of dominance. To assess whether Intermarché is dominant, we need to define the relevant market. In this case, the agreement between Intermarché and Coca Cola is a vertical agreement, i.e. [12]an agreement for the sale and purchase of goods or services which are entered into between companies operating at different levels of the distribution chain”. In the case of vertical agreements, several authors suggest [13] that the distributor’s relevant market is identical to the relevant supplier’s market. This means that the relevant market is the CSD market. The only difference between the supplier and the distributor is the calculation of the market share. The distributor’s market share is calculated based on the purchases with all suppliers of CSD, including other suppliers, in this case e.g. PepsiCo. Due to this method of calculation, Intermarché’s market share becomes too small to consider dominance. Even if the Court decides that Intermarché is dominant, it is highly unlikely that the Court will find abuse for the same reason as in the Oscar Bronner [14] case, where Mediaprint refused to distribute Oscar Bronner’s newspaper. The Court decided that when it is not impossible or unreasonably difficult to distribute the products themselves or in cooperation with other undertakings, there is no abuse of dominance when the distributor refuses to distribute.

Besides abuse of dominance, the current market position of Intermarché influences this dispute in other ways, for example, through buyer power. Buyer power has been defined [15] as “the ability of the buyer to influence the terms and conditions on which it purchases goods” and can offset [16] the effects of the dominance. The archetype [17] of buyer power is the grocery retail sector. In the Enso/Stora [16] decision, the Commission considered that the buyer power of the grocery retailer even outbalances a 70 percent market share of the supplier. Considering the delisting of half of Coca Cola’s products, the market share of Intermarché and the fact that it is estimated [6] that Coca Cola’s profit in France will drop by 9 percent if they only sell half their products at Intermarché, it can be concluded the buyer power of Intermarché might countervail the dominance of Coca Cola.

Chest always so puffed guy – Imbalanced agreement

If a judge decides that the refusal to supply is not abuse because Intermarché’s order is out of the ordinary or Intermarché’s buyer power countervails the dominance of Coca Cola, it is still possible that the clause forcing undertakings to sell the whole assortment is a violation of competition law sensu lato. As was already discussed in a previous blog post [18], France has put into place legislation [19] that provides remedies when there is abuse of relative dominance. I have emphasized that both Coca Cola and Intermarché are market leaders. However, it cannot be forgotten that Intermarché is a leader in the French market while Coca Cola is a worldwide market leader. The first requirement for abuse of relative dominance, economic dependence, could thus be argued to be fulfilled. Considering this, the requirement to sell the entire assortment without an option to renegotiate could be seen as a significantly imbalanced contract clause. Consequently, relative abuse of dominance can provide Intermarché with a more viable option to pursue this dispute in court, but the criteria for economic dependence have proven to be interpreted [20] strictly.

Meanwhile, Intermarché has initiated proceedings before the Commercial Court in Paris, which has issued an interim order. The order is not publicly available but has been leaked [21] in the press. The judge found abuse of dominance and ordered Coca Cola to resume delivering its products for January and February. In conclusion, although both are market leaders on the French market, and Intermarché is confident enough to defy Coca Cola, legally speaking, Coca Cola appears to be the bad guy.