Pay you, pay me
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The UK papers are this morning carrying a story that Premier Foods, one of the country's biggest food companies (it owns the brands Mr Kipling, Oxo and Bisto), has been asking its suppliers to pay a fee, or risk being removed from its approved list of suppliers. The fee is variously referred to as 'a shameful cash gift' or an 'investment payment to help fund growth via strategic partnering'.
The big supermarkets have been restricted from demanding payments as a condition of being a supplier by the Groceries Supply Code of Practice. The Code effectively outlaws the practice of demanding such payments unless they are made in connection with a promotion, or for stocking new products where the payment reflects the risk taken by the supermarket in stocking the new product.
Other than big supermarkets, which are subject to the Code, the rules governing these sorts of arrangements are those that outlaw the abuse of market dominance.
In the EU, it is not the size of the company that determines likelihood of market dominance, but rather the ability to hinder effective competition on a market by behaving independently of competitors and customers. A market share of 40% or more is generally the threshold at which dominance concerns arise.
Dominance, on its own, is not a problem. It is only the abuse of a position of dominance that is problematic. Abuses are exclusionary or exploitative practices: exclusionary practices tend to drive competitors from the market, thereby protecting and enhancing the position of dominance; exploitative practices are unfair trading practices.
Unless there is an objective justification for paying fees to remain as an approved supplier to a dominant company, it is possible that demanding such payments could be an abusive practice.
If you would like to discuss these issues please do not hesitate to contact John Cassels at john.cassels@ffw.com