In early July, the Polish competition authority (UOKiK) has opened preliminary investigations into the rebate practices of 19 retail chains. In particular, the authority will focus on whether retrospective rebates are used to exploit retail chains' contractual advantage towards small and medium-sized enterprises supplying food products.
The UOKiK has sent detailed requests to retail chains and to selected food product suppliers asking them for information on the types of rebates applied by retail chains.
In its press release of 7 September 2020, the UOKiK described the mechanism of retrospective rebates used in relations between retail chains and their suppliers, and pointed out that such rebates are also applied in contracts concluded for short periods of time.
It expressed its concerns about two types of practices of retail chains.
- In some situations, suppliers concluding a contract are not able to determine the amount of or criteria for the rebates specified by a retail chain. The UOKiK argues that such uncertainty in itself may be unlawful, as it may constitute an unfair use of a contractual advantage.
- Retrospective rebates sometimes lead to situations in which suppliers of retail chains earn significantly less when their sales go up.
The UOKiK suggests that this can lead to extreme situations in which cooperation becomes unprofitable, but withdrawal from the contract involves significant contractual penalties.
At the same time, retail chains earn revenue not only based on their price margin, but also on the retrospective rebates applied and other fixed payments that further worsen the profitability of cooperation between the supplier and the retail chain.
The UOKiK is of the opinion that such an application of retrospective rebates results in a situation where the commercial risk is borne solely by the supplier of the retail chain.
However, the press release does not provide crucial information on whether retail chains use individualised or standardised thresholds of rebates, or on whether the UOKiK believes that such rebates can cause a likely or actual market foreclosure for suppliers.
Importantly, the UOKiK is not conducting the proceedings pursuant to the Act on competition and consumer protection, but pursuant to the Act on counteracting the unfair use of contractual advantage in trade in agricultural and food products, which contains the definition of contractual advantage (not always synonymous with dominance).
Thus, if retail chains are found to be in violation of the law, they may face a penalty of up to 3% of their annual turnover, and not up to 10% of their annual turnover, as would be the case if the Act on competition and consumer protection applied.
For more information please contact Piotr Dynowski or Marcin Alberski.