Hergüner Competition Monthly - April 2023

The Final Report of the Sector Inquiry on Fast Moving Consumer Goods Retailing

The Turkish Competition Authority (“TCA”) published its Final Report of the Sector Inquiry on Fast-Moving Consumer Goods Retailing Sector (“FMCG Report”) on 30.03.2023. The preliminary report published on 05.02.2021 was the first step of this sectoral review, and in this FMGC Report, it was stated that the concentration levels in the fast-moving consumer goods ("FMCG") retailing market increased sharply, the market share of the top four undertakings[1] with the highest market share in the sector increased significantly, and it was evaluated that effective measures should be taken. For more information, the final report is accessible here and the preliminary report is here.

As the FMCG retailing sector concerns all segments of consumers and has a significant place in daily economic life, it has been monitored in terms of competition law. Especially after the administrative monetary fines imposed on five major supermarket chains[1] who determined the retail prices of many products during the Covid-19 pandemic,[2] investigations into the sector have also increased.

In the FMCG Report, the TCA stated the following remarks about the structure of the sector and the current competitive concerns:

• Organized retail, which includes hypermarkets, supermarkets, discounters, etc., has surpassed traditional retail consisting of grocery stores, kiosks, and unorganized small markets.
• As indicated in the preliminary report, it has been observed that concentration levels in the sector are high and the four undertakings with the largest market share in the FMCG market dominate most of the market, which creates a practical barrier to market entry,
• Vertically integrated structures that gain a cost advantage by controlling the various production stages have the potential to be more competitive by using the information they possess from different stages.
• Discounters have concentrated through organic growth (by opening new stores) and have increased their market power through private label products and a low-cost store format that responds to the demands of local consumers.
• Retailers engage in behaviours that constitute unfair trading practices due to their buyer power over suppliers:
• Charging additional fees and unforeseen costs to suppliers,
• Making provisions in favour of retailers that may be deemed excessive in the agreements with suppliers,
• Agreeing on payment terms that create ambiguity to the disadvantage of the supplier.
• Online sales have increased particularly due to the Covid-19 pandemic and such digitalization in the sector will directly affect current market competition.
• The definition of the relevant market in FMCG retailing has two aspects: the supply market and the retail market.
• Private-label products may have a competitive effect, but exchanges of competitively sensitive information between private-label product manufacturers and retailers should be prevented.
• In the above-mentioned matter, it is sufficient to make an evaluation on a case-by-case basis instead of completely implementing “the Great Wall practices”, which means the walling up of all communication channels between the relevant purchasing units.

The main proposals and planned implementations of the TCA regarding the solution to sectoral problems are as follows:

• It was emphasized that the sectoral concentrations should be strictly examined, and if necessary, neighborhoods or districts could be reached in terms of the relevant geographical market. The idea of sector-based turnover thresholds mentioned in the preliminary report was abandoned.
• To prevent the abuse of buyer power by retailers, a buyer market share threshold was considered to be added to the legislation.
• The TCA has proposed that an independent administrative authority should be established to supervise the use of buyer power and a legal framework should be prepared to prevent retailers from abusing their buyer power over suppliers.
• To protect small and local retailers, it is proposed to restrict new store openings and acquisitions depending on the location.
• The TCA has suggested that a regulation be made to ensure that the advertised prices of products be maintained for the period mentioned in the commercials.
• The TCA also underlined that the effect of digitalization on competition law should be taken into account for the future relevant product and relevant geographical market definitions and competition evaluations.
• It is also proposed to prevent agreements to manufacture products with specific weights for a single-chain supermarket. It is stated that such agreements, particularly exclusive agreements, both affect competition and cause consumers to be misled.

The Preliminary Report of the Sector Inquiry on Online Advertisements has been Published

On 21.012021, the TCA initiated a sector inquiry to evaluate local and global developments in the online advertisement sector, to identify behavioural and structural competition law problems, and to investigate possible solutions through policy changes and regulations. The TCA’s Preliminary Report on the Online Advertisement Sector (“Preliminary Report”) was published on the TCA’s official website on 07.04.2023. You can access the Preliminary Report here.

In the Preliminary Report, the TCA made the following observations on the structure of the sector:

• There is no substitution relationship between online advertising and offline advertising; therefore, they do not belong to the same market,
• The online display advertising market is concentrated around the economic entities of Meta and Google,
• Video advertising is considered to be a stand-alone type of display advertising and social media platforms have an advantage in this category,
• With targeted advertising, publishers increase the efficiency of their advertising space and advertising revenues. As a result of displaying ads according to needs and interests, the interaction and performance of ads increase,
• In addition to these benefits, targeted advertising creates privacy concerns for consumers as it is based on the collection, use, and sharing of personal data.

The TCA has addressed the potential competition law concerns in the sector, including but not limited to:

• Conflicts of interest between vertically integrated ad technology providers and their customers (e.g., Google favouring itself as a provider because it dominates every step in the industry supply chain),
• The problem of transparency in the supply chain:
• Not having full information about the difference between the price paid by the advertiser and the price received by the publisher,
• The complexity of auctions in the ad tech supply chain,
• Undertakings preventing independent parties from measuring the performance of their services,

As news publishers whose main income is based on advertising are forced to accept the conditions of digital platforms unconditionally, it becomes difficult for news publishers to maintain their activities, resulting in a decrease in the quality and quantity of news content.

We will also share detailed assessments regarding these findings and competition law concerns discussed in the Preliminary Report upon the publication of the TCA’s final report on the matter.

A Sector Inquiry on Mobile Ecosystems has been Initiated

The TCA announced on its website on 12.04.2023 that it has initiated a sector inquiry on mobile ecosystems.

The scope and purpose of the sector inquiry were explained as understanding the (possible) competitive and anti-competitive effects caused by mobile ecosystems and formulating effective policies based on these effects, and ensuring a competitive market environment in the digital economy. In this respect, the main concern was summarized as the close relationship between operating systems, applications, and app stores creating the mobile ecosystem and the simultaneous operation of players with market power in many sub-markets in mobile ecosystems due to big data advantage and network effects which may cause competitive concerns.

The TCA also stated that the sector inquiry will seek information from service providers as well as application developers, end consumers, and device manufacturers who are users of the service. We expect to have a comprehensive picture of the sector with a focus on competitiveness along with the data obtained within the scope of the sector inquiry.

The BSH Investigation was Concluded with Commitments

The Board announced on 12.04.2023 that the investigation against BSH Ev Aletleri Sanayi ve Ticaret A.Ş. (“BSH”) was concluded upon the submission of BSH’s commitments within the scope of the commitment procedure.

About two years ago, an investigation was initiated against a number of undertakings, including BSH, Arçelik, LG, Samsung, SVS, and Gürses, with the allegation that they violated Article 4 of the Act No. 4054 on the Protection of Competition (“Competition Act”) by preventing their authorised dealers from making sales over the internet and by interfering with resale prices.

The subject matter of the investigation conducted against BSH was that the clauses included in the BSH's agreements with its authorised dealers in the selective distribution system (“SDS”)[4] and its practice of prohibiting its authorized dealers from making sales on online marketplaces severely restricted competition.

During the investigation, BSH applied for the initiation of a commitment procedure, and afterwards, commitment negotiations began. BSH had submitted commitments to the Authority on 27.12.2021 to address the competitive concerns regarding the subject of the investigation. Under this commitment package, BSH tried to eliminate the competition problems caused by the provisions in the contracts concluded with MediaMarkt and Teknosa with its SDS member authorised dealers and introduced several criteria to ensure the expected benefit of the SDS while allowing the internet sales of authorised dealers.

Some of the commitments in the first commitment letter submitted by BSH can be analysed under two main headings. Firstly, the commitments regarding the amendments to be made in agreements concluded for physical store sales. To this extent, BSH committed to:

• remove the clause in the contracts that prohibits active sales from SDS member authorised dealers to end users,
• remove the clause from the contracts that requires SDS members to engage in exclusive purchasing and the prohibition on product purchases and sales between SDS member resellers, and
• amend the clause in the brand exclusive dealership contracts concluded by BSH with its dealers that prohibits active and passive sales by authorised dealers to end users by allocating an exclusive customer group to BSH.

Among the announced commitments, the last commitment item was not considered sufficient to eliminate the competition problems determined by the Board, and although the other commitments were approved, the commitment regarding the amendment to the provision included in the brand exclusive dealership contracts was rejected. Accordingly, BSH submitted a revised commitment text stating that it will completely remove the said provision from the contracts.

In the second part of the commitment package, BSH suggested that the authorised dealers should be allowed to sell BSH branded products through online marketplaces if these sales are subject to certain criteria similar to those applied to physical store authorised dealers in the SDS. In the initial text submitted by BSH, there was a list of mandatory criteria that included 26 items[5] for both BSH authorised dealers and online marketplace platforms regarding the sale of BSH branded products through online marketplaces. As such, BSH authorised dealers are only allowed to sell products through online platforms if the criteria have been met and a contract has been signed with BSH undertaking to fulfil the criteria. Authorised dealers are also required to comply with the authorised dealer criteria planned to be imposed on them. The Board concluded that some of these criteria were acceptable for SDS member authorised dealers, while others were rejected as they were not intended to protect the brand image, quality, and quality of distribution. Furthermore, the terms and conditions imposed on online marketplace platforms acting as third parties were considered to be unacceptable within the scope of the rule that “commitments cannot be made for the actions of third parties”[6] and were rejected.

The Board accepted the criteria stated in the revised commitment text submitted by BSH applicable only to SDS member authorised dealers and rendered the findings binding. In conclusion, the investigation against BSH was concluded with a comprehensive commitment package, including:

• amendments to BSH's contracts for physical sales channels; and
• removal of the prohibition for authorised resellers to sell on online marketplaces and adoption of the practice to allow authorised resellers to sell through online channel by complying with criteria similar to the requirements for authorised resellers operating in physical channels.

The Board Published a Decision Concerning Miele’s Investigation which was Concluded With a Settlement

The Competition Board announced in the decision published on 12.04.2023 that the investigation conducted against Miele Elektrik Aletler Dış Ticaret ve Pazarlama Ltd. Şti (“Miele”) was concluded with a settlement on 10.11.2022.

The Board initiated an investigation on 30.06.2022 to determine whether Miele violated Article 4 of the Competition Act by interfering with the resale price listed by the resellers of its products.

The Board examined what resale price maintenance actions had been taken by Miele to determine its resellers’ prices.  Accordingly, it was concluded that:

• Miele’s employees monitor internet prices and increase the prices for products whose price falls below Miele’s desired price point;
• Miele sets a profit margin in the contracts executed with its resellers;
• Miele does not supply goods to resellers who do not comply with the prices in the price lists; and
• Resellers who fail to comply with Miele's price lists are given a warning or are pressured by Miele or its distributors to comply with the desired prices.

The Board found that the aforementioned practices directly and indirectly fall within the scope of vertical agreements prohibited under Article 4 of the Competition Act and that Miele thus violated the Competition Act.

Subsequently, Miele requested the initiation of the settlement process in its letter dated 18.08.2022. The Board decided to conclude the investigation by settlement upon Miele’s explicit acceptance of the violation. As a result of the settlement, a 25% discount was applied to the administrative fine and the investigation was terminated by reconciliation.

[1] As indicated in the HTM Report; BİM, A101, Migros and ŞOK.

[2] BİM, CarrefourSA, Migros, Savola, ŞOK, Yeni Mağazacılık (A101)

[3] Board decision dated 28.10.2021 and numbered 21-53/747-360.

[4] The terms "SDS member", "SDS member authorised dealer", and "authorised dealer" in this context refer to the authorised dealers included in BSH's SDS.

[5] The criteria foreseen for platforms are as follows: The platform will be free to publish advertisements that BSH confirms are appropriate within the scope of brand use, the platform must sign a contract with BSH undertaking to comply with the criteria set out in the commitment text, the platform must provide technical solutions to prevent the platform from selling more than four of the same product to the same buyer at a time, etc.

[6] Article 9 of the Communiqué on Commitments to be Submitted in Preliminary Investigations and Investigations Regarding Agreements, Concerted Practices, and Decisions Limiting Competition and the Abuse of Dominant Position.

First published by Hergüner Bilgen Üçer Attorney Partnership, May 2023

Tagged with: Competition, Competition Board, Competition and Markets Authority, CMA, 4054, Herguner