German FCO imposes fine Fuchs

28 July 2006

Christian Schwedler

May 2006

The German Federal Cartel Office (FCO) has imposed a fine of €250,000 against TEUTO Gewürzvertrieb GmbH (TEUTO), Dissen, the distribution company of the Fuchs group, for violating a prohibition decision of the FCO. The investigations show that TEUTO had indeed changed their written agreements in accordance with the prohibition, but continued its abusive behaviour on an informal basis.

The FCO’s prohibition decision dates back to July 2002 and was aimed at stopping the Fuchs group from unfairly impeding the business activities of Hartkorn, one of the few remaining medium-sized spice producers. The infringement amounted to forcing competitors out of the market systematically by paying retailers high contributions to advertising costs, which induced them to agree to stock exclusively Fuchs products.

Fuchs sells dried spices and herbs in household packages under the brand names Fuchs, Ostmann, Ubena and Wagner to food retailers in Germany via the distribution company TEUTO. With a market share of more than 70 per cent the company has a dominant position on the German market. It is also the market leader in Europe and the second largest spice producer in the world after US-American McCormick.

According to the FCO’s investigations, TEUTO sales representatives committed at least five violations of the prohibition decision since the decision had been issued. TEUTO’s sales representatives had no longer enforced exclusivity upon the retailers they supplied on a written basis but had either agreed this verbally or de facto enforced it by the manner in which the provisions of the supply agreements were formulated. As an incentive for granting exclusivity to the detriment of Hartkorn, the retailers received unusually high contributions to advertising costs in the form of payments and/or services in kind (of economic value) such as in particular the free supply of basic equipment, i.e. shop shelves filled with spices.

The FCO found that these violations were made possible by the negligent breach of duty of supervision by the former managing director who was responsible at that time for TEUTO’s distribution activities. This breach of duty of supervision has now been penalised by the decision of the FCO. TEUTO can appeal against the decision.

The decision is designed to show the FCO’s determination to stop powerful companies squeezing their smaller competitors out of the market by improper means. It is a signal that companies that continue to do so even after a prohibition decision commit a grave violation and must face correspondingly high fines. The FCO made it quite clear that it will exercise its powers to the greatest extent possible to end competition law violations permanently.

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