The European Commission recently imposed a €337.5 million fine on Mondelēz, reminding food and drink businesses of the importance of ensuring their distribution arrangements comply with competition law in the EU, the UK and internationally.

Background

Mondelēz, headquartered in the USA, is one of the largest producers of chocolate and biscuit products in the world. It owns well-known brands such as Milka, Oreo, Ritz, and Toblerone. Prior to 2015 it also owned various coffee brands.

In November 2019, the Commission carried out 'dawn raids' of Mondelēz's facilities in three different Member States, as part of an investigation of the suspected use of anticompetitive agreements and abuse of a dominant market position. A statement of objections outlining the Commission's allegations was issued in January 2021, with the outcome and fine announced in May 2024. The Commission's full decision was published in August, detailing the breaches and the impact these had on cross-border trade within the EU internal market, as well as the basis on which the fine was calculated.

The Commission concluded that Mondelēz's distribution arrangements restricted competition in relation to chocolate, biscuits, and coffee between 2006 and 2020, artificially partitioning the internal market in a way that resulted in higher prices and more limited choice for consumers. The size of the fine reflects both the seriousness with which the Commission treats these infringements and also the size of Mondelēz as a business (the maximum fine that can be imposed being 10% of global group turnover), albeit Mondelēz did receive a 15% discount for cooperating with the investigation and acknowledging its liability.

Key Points

The Commission found that Mondelēz had entered into or engaged in 22 anticompetitive agreements and concerted practices between 2006 and 2020, in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU). Article 101 TFEU prohibits agreements that have as their object or effect the restriction, prevention, or distortion of competition within the EU, and which have an effect on trade between Member States. In Mondelēz's case, the arrangements included limiting the territories or customers into which certain wholesale customers could resell products, requiring a customer to charge more for exports compared to 'domestic' sales, and blocking some exclusive distributors from replying to sales requests from customers in other Member States. Both EU and UK competition law prohibit such strict constraints even on exclusive distributors.

The Commission also concluded that Mondelēz abused a dominant market position, contrary to Article 102 TFEU, by refusing to supply a German wholesaler so that products would not be resold in Member States where prices were higher, as well as by ceasing to supply certain chocolate products in the Netherlands to prevent them being imported into the higher-priced Belgian market.

In the EU the prohibitions on such arrangements are often expressed as being specifically for the purposes of supporting the 'internal market', by ensuring products can flow more freely between Member States. For the avoidance of doubt, however, UK competition law imposes essentially the same restrictions on distribution arrangements – regardless of whether goods are intended for export or for sale within the UK. Even where a particular distributor has been given exclusivity for a particular territory or customer group, at minimum it must be free to respond to inquiries from customers not within its 'exclusive' remit.

There are detailed rules setting out when such 'vertical' restrictions are likely to fall foul of competition law, including restrictions on online sales and resale price maintenance.

Conclusion

The Commission's finding that Mondelēz abused a dominant position was unusual for a food & drink business, with abuse decisions more commonly directed at the digital giants such as Appleand Google. However, that approach meant the Commission could reach Mondelez's unilateral decisions not to supply particular customers or territories – non-dominant businesses can generally choose who they will or will not do business with (though refusing to supply some customers can still be a problem if it is required under, or done to reinforce, anti-competitive agreements with others).

The case also reflects that the food and drink sector is a particular focus of competition regulators looking to ease cost-of-living pressures for consumers, as can be seen from the speechgiven by Competition Commissioner Margrethe Vestager in relation to the Mondelēz case: "The cost and quality of food is a core priority for European citizens. This is a sector in which we have several ongoing investigations, such as the ones in food delivery services and in energy drinks."

Food and drink businesses operating in both the EU and the UK should keep this decision in mind when reviewing or entering into distribution agreements, and should ensure any restrictions on their distributors' ability to sell to particular territories or customers are compliant with competition law.

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