The Competition and Markets Authority (CMA) recently issued new guidance highlighting competition law risks for retailers invited by local authorities to participate in so-called ‘high-strength alcohol’ schemes. Such schemes, which it seems are becoming popular throughout the UK, often involve local authorities, police and local retailers working together to prevent or limit the sale of ‘high-strength’ alcohol (which often means white cider).
The purpose of the guidance is to remind both the private and the public sector that it is unlawful for businesses to agree matters of commercial strategy with each other, even where that is encouraged or facilitated by public authorities pursuing policy goals such as improving health or reducing crime. The sort of arrangements with which the guidance is concerned, such as competing businesses agreeing that neither of them will stock high-alcohol products, will distort or restrict competition and so contravene Chapter 1 of the Competition Act 1998.
The Competition Act will also be breached if local authorities act as a ‘middle man’ to communicate competing retailers’ intentions to each other (e.g. telling A that B has agreed to remove high-strength alcohol from its shelves if A will agree to do likewise). Such arrangements are known as ‘hub and spoke’ breaches of competition law.
The risks to businesses of deliberately or even inadvertently breaching competition law can be severe:
- Fines of up to 10% of global group turnover;
- Jail sentences of up to 5 years and/or unlimited fines for the most severe breaches;
- Disqualification of directors for up to 15 years; and
- Significant reputational and brand damage.
The CMA has therefore developed a “60-second guide” on high-strength alcohol schemes, and set out some further tips in an open letter to retailers. These highlight competition law issues that are generally relevant to businesses of all shapes and sizes (collusion, distortion of markets and the sharing of commercially sensitive information), but which are not always recognised by businesses as entailing competition law risks, and in particular set out ‘DO’s’ and ‘DON’Ts’ for retailers asked to be involved in high-strength alcohol schemes:
- DON’T collaborate with other retailers to agree to withdraw high-strength alcohol.
- DON’T share information with competitors about whether you plan to stock high-strength alcohol, or let your competitors share their plans regarding high-strength alcohol with you.
- DON’T make a commitment to sign up to a scheme in a meeting where other retailers are present.
- DO speak with council officials about your plans on an individual basis. DON’T let them tell you about what other retailers may be doing and, if they try, tell them that you’re not interested and you’re not willing to discuss it.
- DON’T go public about participation in a scheme until it has been launched.
- If you are in a meeting in which a competitor tries to tell you their commercial plans (or a local council tries to tell you about your competitors’ commercial plans), tell them you are not interested and that you’re not willing discuss it. If you can do so, leave or call an end to the meeting.
The key message here, and for competition law generally, is that businesses must make independent decisions based on their own commercial judgment, and not on commercially sensitive information obtained from competitors.
The guidance on high-strength alcohol schemes follows previous, more detailed CMA guidance for local authorities. That emphasised that, while public authorities are free to seek to involve businesses in the delivery of public policy goals, they need to take care in designing and operating schemes to ensure they do not inadvertently put participants at risk of breaching competition law. It will generally be a lower-risk option to simply impose requirements on businesses through mandatory regulation, with which competition law takes no issue, rather than encouraging ‘voluntary’ action.
If you are a retailer who is or has been asked to be a participant in a high-strength alcohol or similar scheme, or a public authority operating or looking to design such a scheme, please don’t hesitate to get in touch with any queries or concerns you may have.
On May 19, 2015