• Home
  • Articles
  • The Platform Law
  • Brain freeze to the ice cream manufacturer: The Board penalised Unilever because of its practices in the ice cream sector

Brain freeze to the ice cream manufacturer: The Board penalised Unilever because of its practices in the ice cream sector

0Shares

 In 2019, the Turkish Competition Board (“Board”) initiated a full-fledged investigation into the practices of Unilever San. ve Tic. Türk A.Ş. (“Unilever”) regarding the sale of competing ice cream products at final sales outlets.[1] Unilever has been active on the ice cream market in Turkey since 1990 under the “Algida” brand.

As a result of its investigation, the Board decided to impose administrative fines on Unilever for violations of Articles 4 and 6 of the Law on the Protection of Competition (“Law No. 4054”).[2] The Board also ruled that the exclusivity provision of loan agreements regulating the use of Unilever’s ice cream cabinets violates Article 4 of Law No. 4054 as it prevents competition at sales points with a closed sales area of less than 100 m² and therefore required Unilever to remove the exclusivity provision from the agreements.

 Violation of Article 4 of Law No. 4054   

Under Article 4 of Law No. 4054, agreements and concerted practices between undertakings that are likely to result in market distortion or restriction of competition are prohibited. In light of this prohibition, all relevant and valid contracts concluded between Unilever and its distributors and/or the sales outlets were reviewed. Contracts signed with nationwide distributors, discount stores and local direct companies showed a diverse set of clauses preventing competition, e.g., the requirement to pay premiums for the right to additional freezer space, fair-shelf share, and the placement of advertising posters, among others. One contract signed with an indirect local customer prohibited them from placing any product other than Unilever products in Unilever’s ice cream cabinets. The premium system’s conditions were dependent on several criteria including on-time payment, effective cabinet placing, placing a cabinet in front of the register, the 12-month volume of ice cream sales, etc. The premium rates were laid out in accordance with specified growth targets. Furthermore, the placing of additional Unilever “Magnum” and “Maras” cabinets and extending the sales season were also rewarded with premium rates.

 A contract concluded between Unilever and a customer operating in the traditional sales channel not only forbids the latter to place any other product in Unilever’s ice cream cabinets but also includes a clause under which Unilever paid a certain amount to the retailer to sell its products. For customers operating in the e-commerce channel, such as Getir[3] (an online supermarket platform), Unilever offers a number of ice cream cabinets on a complimentary basis and reserves the right to increase or decrease their number accordingly. It also provides a 0.5% premium rate upon reaching set targets. 

Agreement between Unilever and Getir 

According to the documentation provided by Unilever, its current e-commerce customers were Getir and Istegelsin[4], with on-going discussions with Yemeksepeti (i.e. Turkish Delivery Hero) for sales through Yemeksepeti’s platform, Banabi.

An “E-commerce cooperation agreement” has been signed between Unilever and Getir, under which direct sales to the online platform are made. Apart from the latter, no other agreements include provisions in violation of Article 4 of Law No. 4054 (such as exclusivity provisions). Thus, the following paragraphs relate to the Unilever – Getir agreement.

Moreover, as a subject of the Board’s 2008 Decision, Unilever had already been banned from imposing non-compete obligations or any practices that could lead to de facto exclusivity as well as from introducing a condition on sales outlets to purchase an amount at a certain fraction of the previous year’s sales or providing them benefits tied to such conditions. The company nevertheless included such clauses in the agreement in question, which was drawn up for an indefinite period of time, unlike other agreements that were limited to five years at most. As a result of the Board’s on-going investigation, the agreement was amended and the indefinite duration clause was changed to a limited time period. Getir also stated that it was their decision and preference to work with Unilever exclusively after signing the initial contract in 2015. However, the fact that they did not sell any other competing product until July 2020 shows that they perceived the particular provision as a non-compete obligation. Getir also informed Panda[5] that they work with another brand when the latter contacted them. Considering the above arguments, it was concluded that Unilever had breached the Board’s 2008 Decision through its agreement with Getir and is subject to an administrative fine for that reason.

 This administrative fine, however, can be criticised from various aspects. The relevant article of the agreement between Unilever and Getir contains an exclusivity provision regarding ice cream cabinets, which Unilever had been banned from including. That said, the agreement does not prevent Getir from selling products of other ice cream manufacturers, thus the provision should not be interpreted as an outlet exclusivity. Further, given that Getir operates as an online supermarket, there is no possibility that the freezer exclusivity to become de facto (sales point) exclusivity. Moreover, it is stated that there is no evidence in the case file that the agreement clause has been violated. Even in the presence of evidence, one can argue that it is not very likely for a single agreement to have a significant impact on the market. Nevertheless, the Board determined that even if the exclusivity agreement of a dominant company binds only a small portion of the market, these agreements are in fact likely to significantly restrict competition. 

Unilever’s dominant position in the industrial ice cream market

Article 3 of Law No. 4054 provides the following definition of dominant position: “the power of one or more undertakings in a particular market to determine economic parameters such as price, supply, the amount of production and distribution, by acting independently of their competitors and customers”.

In order to determine whether Unilever abused its dominant position, the Board carried out an assessment of the “industrial ice cream market”. It was established that Unilever holds the leadership position in the sector, followed by Golf and Panda, whose market shares have been shrinking over the past years. Unilever’s market share for the last three years has consistently exceeded 80% in the traditional channels and supermarkets. In terms of the traditional channel, the number of sales points where Unilever is present is on average five times the number of sales points where its competitors are located. While the number of sales points where Unilever is located has been constantly increasing in the last three years, the availability of competitors’ products is constantly decreasing. 

The industrial ice cream market is a market where competition has been limited due to the dominance of Unilever for many years. The Board cited the Hoffman-La Roche decision[6] according to which an undertaking with a 70 to 90 per cent market share is very likely to hold a dominant position in the market, which also provides a strong presumption for Unilever’s dominant position. Algida’s brand recognition has consistently ranked highest during the period from 2017 to 2019. Some of the company’s products, such as Magnum, Carte d’Or and Cornetto, have a recognition score of nearly four times higher than those of its closest competitor – Ülker Golf’s Bravo, Lungo and Royal. Due to the name the company has won for itself and the statistics showing its peaking performance, Algida has become a must-stock brand for both the traditional and modern channels. 

Taking into consideration the stated arguments, the Board concluded that Unilever held a dominant position in the ice cream market[7] and subsequently has violated Article 6, which we review below. 

Violation of Article 6 of Law No. 4054 

As per Article 6 of Law No. 4054, “the abuse, by one or more undertakings of their dominant position in a market for goods or services within the whole or a part of the country on their own or through agreements with others or through concerted practices, is illegal and prohibited.” The article then provides a non-exhaustive list of examples of abusive practices, and while holding a dominant position is not an abuse in and of itself, applying exploitative, discriminatory or exclusionary behaviour will in fact constitute an abuse. Unilever’s behaviour falls under the latter category, as the company created de facto exclusivity at final sales outlets by preventing the sale of competing products through the use of cabinet exclusivity and discount practices. In addition, cabinet exclusivity at sales points in the traditional channel—where there is a shortage of physical space—becomes an outlet exclusivity, as there is no possibility to place extra ice cream cabinets at these sales point locations.[8]

Cabinet exclusivity relates to the strict prohibition for the customer against placing products other than Unilever’s inside the freezer, as well as their use provided through loan agreements. Data for the period 2017–2019 has also shown that Algida has significantly more freezers than those of Golf and Panda and that they have maintained their number in the traditional channel but increased in all other channels.   

Particular emphasis was put on cabinet exclusivity in sales outlets smaller than 100 m² that, due to the physical limitations of the space, are unable to increase the number of freezers[9]. Regarding the creation of de facto exclusivity through different discount systems, no unitary “concession system” has been established. 

The following are some of the means Unilever used to abuse its dominant position: special freezer cabinets; below-invoice discounts; the provision of functional visibility materials for storing products such as sunshades, umbrellas, dustbins, etc.; free products for customers who open earlier and/or close late and who operate outside the peak season; free products for supporting electricity costs, etc. Such discounts given by a dominant undertaking on the market are clearly going to produce exclusivity effects and thus restrict competition.

“Increasing the volume or the number of freezers will prevent competitors’ entry to outlets by affecting outlets’ incentive to get products from competitors even for the part open to competition”, states the Board. It is also highlighted that in this way the outlet will be closed to competitors, or they will have to exit the outlet, or their entry will be significantly obstructed due to the increase in both the number and volume of freezers. Thus, that kind of discount system aims to exclude competitors from the said outlets and falls directly under the scope of Article 6. 

Although the Board based its analysis regarding the abuse of dominance on rebate systems, it did not assess the impacts of the rebates and their ability to increase loyalty. It can be argued that in order to prohibit a dominant undertaking from offering rebates the purpose of the rebate as well as the conditions under which it is granted must be revealed. However, based on the reasoned decision, the Board did not analyse the rebate systems of Unilever thoroughly. Accordingly, we are of the view that Unilever’s abusive behaviour does not fall into any of the listed abusive conducts under Article 6 of Law No. 4054 and is a rather unique form of abuse of dominance. 

Board’s previous decisions on cabinet exclusivity 

An assessment concerning refrigerators is included in the Board’s CocaCola decision, which states that refrigerators provided to sales outlets under loan agreements have an important function due to their effect of causing de facto exclusivity, that this exclusivity effect was limited for retail outlets larger than 100 m², and that the main factor in turning refrigerator exclusivity into de facto exclusivity was the available space of the outlet concerned.[10] The decision also states that a limited number of refrigerators were available within the traditional channel, where cold availability was important, due to a lack of space in the sales outlets, which made refrigerators a significant barrier to entry. 

The decision ruled that if an outlet (in the home or on-site consumption channel) does not have a refrigerator for non-alcoholic beverages other than those owned by CocaCola, loan agreements regulating the use of CocaCola’s refrigerators at that outlet must be arranged to allow the placement of competing products in the refrigerator covering 20% of the refrigerator’s visible area as well as the total refrigerator volume at the outlet. 

In a similar manner the Board’s beer decision[11] referenced the ruling in the ColaCola decision, noting that if, in the home channel, outlets with less than 100 m² sales area only had CocaCola refrigerators on the premises, competitors could place products in those refrigerators no more than 20% of the refrigerator capacity in order to prevent de facto exclusivity, and went on to remark that the 100 m² threshold would be useful to represent traditional channel outlets. Both the CocaCola and Beer decisions made clear that, with respect to retail outlets, the fundamental criterion for storing competing products in the cabinets owned by an undertaking is the size of the sales area (i.e. 100 m²).[12] On the other hand, there is no such limitation for the on-site consumption channel. All in all, for both on-site consumption and the home channel, the obligation for storing competing products in the refrigerators concerned would not be applicable, provided that the outlets have refrigerators belonging to more than one undertaking.

The Unilever decision bears similarity to the Board’s cola and beer decisions and focuses on the cabinet exclusivity resulting in de facto exclusivity mostly at outlets smaller than 100 m². Moreover, ice cream, unlike cola or beer, cannot be offered warm or on the shelf, therefore freezer exclusivity can easily turn into de facto exclusivity for those outlets with insufficient space, thus resulting in entry barriers for competitors who are completely unable to access the outlets concerned. On the other hand, the larger sales area in those outlets with more than 100 m² of space would limit freezer exclusivity, and therefore de facto exclusivity.

Commitments proposed by Unilever

The company submitted two commitment packages under Article 43 of Law No. 4054, suggesting that at traditional channel sales outlets with a sales area less than 100 m², where there is no space for another freezer, the brand shall either replace the horizontal cabinet with a vertical one, thus sharing with the competitor some of Unilever’s area or making room for the competitor’s products, which reduces the space for its own product. The aim of such commitments is to allow competitors to place their products and increase freezer cabinet numbers by facilitating their entry to outlets, while also increasing their market share. Another advantage is the cost optimisation per outlet and the higher customer satisfaction thanks to the increased product availability.

The Board, however, did not find the proposed commitment packages adequate to address the anticompetitive concerns identified. It deemed the packages disproportional and considered that Unilever was proposing measures that it was actually bound to stick to. 

Conclusion

The Board unanimously concluded that Unilever abused its dominant position by means of the discounts it provided and by imposing a non-compete obligation on the online platform Getir and thus violated Law No. 4054. For the latter violation an administrative fine of TL 205.8 million (approx. EUR 20.7) was imposed, whereas for the former violation a fine of TL 274.4 (approx. EUR 27.6 million) was imposed. It is important to note that the administrative judicial process regarding the dispute is still ongoing. 

The Board also ruled that Unilever violated Article 4 of Law No. 4054 and was required to remove the exclusivity clause relating to ice cream cabinet usage at sales points with a closed sales area of less than 100 m². The Board also ruled that if there are no other ice cream cabinets directly accessible to sales points other than Unilever’s, 30% of the total cabinet volume shall be allowed to be used by competitors.    

About the author

Website | + posts

Simru Tayfun is an Associate with experience in competition law. Simru has advised clients in diverse sectors including petrochemicals, pharmaceuticals, e-commerce, cinema, and aerospace. She has also filed numerous merger control filings before the Turkish Competition Authority.

EDUCATION
2018: Istanbul Bilgi University, Faculty of Law, LL.B.
2016: Humboldt Universität zu Berlin, Germany, Erasmus Exchange Student

PROFESSIONAL AFFILIATION
Istanbul Bar Association

LANGUAGES
Turkish, English, German


Simru Tayfun

Simru Tayfun

Simru Tayfun is an Associate with experience in competition law. Simru has advised clients in diverse sectors including petrochemicals, pharmaceuticals, e-commerce, cinema, and aerospace. She has also filed numerous merger control filings before the Turkish Competition Authority. EDUCATION 2018: Istanbul Bilgi University, Faculty of Law, LL.B. 2016: Humboldt Universität zu Berlin, Germany, Erasmus Exchange Student PROFESSIONAL AFFILIATION Istanbul Bar Association LANGUAGES Turkish, English, German

Leave a Reply


Subscribe and Get Weekly Recipes

© Platform Law Daily. All rights reserved.
Powered by Gen & Temizer | Özer