On February 5, 2021, the Competition Authority (“Authority“) published its Preliminary Sector Study Report Regarding Fast-Moving Consumer Goods Retailing (“Preliminary Report“). The Preliminary Report offers critical insights for the fast-moving consumer goods (“FMCG“) retail sector, which goes even beyond competition law enforcement.
What Does the Report Say?
The FMCG retail sector has been at the top of the Authority’s enforcement priorities for some time, primarily due to the sector’s structure and pivotal role in the economy. Thus, the present study is not the first of its kind. On May 24, 2012 the Authority published the results of its first sector study regarding FMCG retailing with the Turkey FMCG Retailing Sector Study Final Report.
In 2017, the Competition Board’s (“Board“) gave its clearance to the Tesco/Migros acquisition. In the clearance decision, the Authority noted that the market dynamics had shifted significantly since the first 2012 study, triggering the Board’s decision to initiate a new study on FMCG retailing.
The Authority turned an important corner in the third year of its study by publishing the Preliminary Report. For this study, the Authority sat down with many stakeholders including organized food retailers, suppliers, research companies, online retailers, association of undertakings and public institutions.
Here are the outstanding key takeaways from the Preliminary Report:
- Concentration Ratios on The Rise: Local and small markets are losing market share to the four major retailers (i.e. BİM, A101, Migros and ŞOK). As of 2019, the four major retailers account for more than 50% of the total market, favoring the discount trade channel in particular. Nearly 90% of the sector players believe that this concentration trend will continue.
- A Threat of Abuse: Discounters sell private label products, which are produced by small and medium sized manufacturers or farmers. In turn, discounters enjoy a vast buying power over these suppliers. A potential abuse of this buyer power could decrease discounters’ revenues as well as their motivation to invest, expand and innovate. Thus, the Authority includes this threat on its watch list to protect the competitive process in the market.
- Watch Out For Unfair Commercial Practices: The Preliminary Report exemplifies unfair commercial practices that stem from buyer power as retailers (i) requesting various payments from suppliers; (ii) insisting on long maturation periods; and (iii) reserving the right to unilaterally change contractual terms. The Authority also acknowledges that although certain remedies are available under the Turkish Commercial Code, the Turkish Code of Obligations and the Law No. 6585 on the Regulation of Retail Trade against these practices, suppliers tend to refrain from pursuing them.
- The Solution – A New Autonomous Administrative Authority: In order to prevent retailers from abusing their buyer power, the Preliminary Report proposes a new legislation along with an autonomous enforcer. Accordingly, the new law should either prohibit or regulate these unfair practices. As per the Preliminary Report, the Authority concluded that the following issues should be prohibited and regulated:
- Prohibition: Maturation periods exceeding (i) 30 days for perishable agricultural and food products and (ii) 60 days for other agricultural products; contract cancellations on short notice for perishable foods; the buyer enforcing unilateral contractual changes; payment requests irrelevant to the transaction; transfer of the risk of loss or non-conformity to the supplier; the buyer’s abuse of commercial secrets; and billing the supplier for the review of its complaint.
- Regulation: When returning unsold products, the supplier incurring costs of (i) listing, shelf and stock; (ii) promotion; (iii) marketing; and (iv) advertisement, the buyer requesting personnel costs from the supplier for shelfing its products.
- Competition Law Enforcement Revisited: The Authority notes that the specificities around the FMCG retail sector might call for special considerations with regard to the application of the Law No. 4054 on the Protection of Competition (“Law No. 4054“).
- Cartel Agreements: The Authority might use the concerted practice presumption more effectively in investigations into this sector.
- Abuse of Dominance: Joint dominance may be of particular importance.
- Merger Control: One could expect more conservative merger control processes regarding transactions concerning the sector. In particular, the Board might choose to define even narrower geographical markets (e.g. districts, neighborhoods). The Authority might also revise the notification thresholds specifically for the FMCG retail sector.
- Other Enforcement Priorities: Potential enforcement priorities indicated in the Preliminary Report as follows: Adopting setting a relatively low threshold in terms of buyer power or setting an industry-specific threshold in the Communiqué No. 2002/2 on Block Exemption of Vertical Agreements; reevaluating exclusivity arrangements; and -as the markets gain a number of advantages arising from being both a producer and a seller by producing private label products and accordingly they can access some commercially sensitive information of the producers- a strict enforcement of Chinese Wall remedies between markets’ (i) private label and (ii) producer label sale departments, exempting (i) buyer associations enabling small/local retailers to purchase products at more feasible prices and (ii) arrangements for the production of private label products by local retailers from Article 4 of Law No. 4054.
The Preliminary Report hints at significant developments in the near future for the FMCG retail sector. These insights come in different forms, from the establishment of a new sector regulator to new priorities and trends in competition law enforcement. Overall, the Authority will likely tighten its grip on the FMCG retail sector and continue its studies regarding the sector.