On 19 October 2004, the Commission announced that it has received draft commitments from Coca-Cola to address the Commission’s competition concerns. The Commission intends to make these commitments binding under Article 9 of Regulation 1/2003. The Commission published a formal consultation notice of its competition concerns and of the substance of the commitments on 26 November 2004, as required by Article 27(4) of Regulation 1/2003. This follows a five year investigation into the commercial practices of Coca-Cola. The Commission announced the formal initiation of proceedings against the company on 29 September 2004 for breaches of EC competition law.
According to the Commission’s preliminary assessment of the market, Coca-Cola and its bottlers jointly hold a dominant position in some national markets for the supply of carbonated soft drinks in the EEA in at least one of the two identified distribution channels: the take-home channel(customers who sell Coca-Cola branded drinks to take away)and the on-premises channel (customers who sell Coca-Cola branded drinks for immediate consumption).
The Commission’s concerns relate to Coca-Cola’s use of:
rebates granted on condition that customers reach individually specified purchase thresholds
requirements for customers to have a range of cola and non-cola stock keeping units
shelf space arrangements in the take-home channel where supermarkets are required to reserve space for Coca-Cola branded products
up-front financing granted to customers in the on-premises channel conditional upon their purchase of Coca-Cola branded products over a number of years
conditions attached to the installation of technical sales equipment such as drinks coolers, vending machines and fountain dispensers
The commitments will apply to all sales of Coca-Cola branded carbonated soft drinks for consumption in any EEA country where Coca-Cola branded drinks account for more than 40% of national carbonated soft drinks sales and more than twice the share of the nearest competitor, i.e. Coca-Cola is likely to be dominant. The main commitments will bring an end to exclusivity arrangements and target and growth rebates, stop the use of Coca-Cola’s strongest brands to sell less popular products and ensure that space is made available in Coca-Cola’s coolers for other manufacturers’ products.
On-premise and take-home channels
For both the on-premise and take-home channels, the following commitments have been proposed:
customers of Coca-Cola will remain free to buy and sell the carbonated soft drinks of any third party and Coca-Cola will not seek to impose or obtain exclusivity of supply
there will be no minimum percentage purchasing obligations (or discounts conditional on minimum purchase levels)
Coca-Cola’s agreements will meet minimum obligations in relation to transparency of performance and termination
rebates will not be conditional on set purchasing thresholds or growth rates of purchases
agreements for the purchase of the most popular carbonated drinks (cola and fanta) will not include tying provisions for the purchase of additional Coca-Cola branded drinks
stocking commitments for customers will be defined separately for different Coca-Cola branded drinks
Coca-Cola will not offer payments or incentives for stocking a range of Coca-Cola branded drinks or require customers to devote a specified percentage of stock space to such drinks
agreements will not condition the supply of Coca-Cola branded drinks or receipt of incentives on a customer’s obligation to discontinue, reduce or vary the terms of any agreements with other suppliers
For take-home channel customers, there are additional commitments on shelf space preventing Coca-Cola from:
requiring exclusivity of shelf space
conditioning supply on customers providing a certain proportion of shelf space in excess of the market share held by Coca-Cola products
calculating shelf space for other Coca-Cola products by reference to sales of or space allocated to cola and fanta drinks
For on-premises channel customers, there are separate provisions relating to the terms on which Coca-Cola may offer financing agreements. A maximum repayment term is fixed, loans are not to be conditional on specified assortment or range commitments and customers must have the option to repay loans or terminate finance agreements. Agreements requiring customers to make available a range of Coca-Cola branded drinks must not exceed five years in duration and give the customer an option to terminate.
Where Coca-Cola sponsors venues, it will not be permitted to require or provide payments or incentives to ensure that other drinks brands will not be available at the venue. Where it sponsors specific events of a limited duration of no more than 60 days a year, Coca-Cola may link sponsorship to exclusive supply rights for the full range of its products.
According to the commitments, Coca-Cola may bid for public and private tender agreements containing exclusive supply obligations. However, in the case of private tenders, agreements must not be for more than 5 years and must allow for termination. Such agreements must also not account for more than 5% of Coca-Cola’s sales in the on-premise channel.
The commitments also deal with the installation and use of technical equipment. Where cooler equipment is supplied to customers free of charge by Coca-Cola and the customer has no other such equipment, at least 20% of the cooler capacity can be used for other products. If such equipment is rented to customers, 20% of capacity may be used for other drinks. Use of cooler equipment purchased by the customer cannot be restricted in any way. Coca-Cola is also prevented from seeking restrictions on the placement of competing dispensers or competing vending machines.
The proposed commitments will remain in place for a period of five years from when they are fully implemented (1 January 2006). Pursuant to publication of the formal consultation notice, other companies now have the opportunity to comment on these commitments which otherwise then will become binding on Coca-Cola.
Source: Undertaking, Case COMP/39.116/B-2 COCA-COLA; Notice, 2004/C 289/08