The Italian Competition Authority to investigate on purchase supercentre created by several large supermarket chains

Unsurprisingly, following the completion of a market investigation on the agri-food sector, the Italian Competition Authority (ICA) has recently opened an Article 101 TFEUinvestigations into the business practices carried out by Centrale Italiana(CI). CI is a company incorporated by several Italian large supermarket chains, Coop Italia, Despar Servizi, Gartico and Discoverde. CI works as a purchase supercentre on behalf of its members plus another large grocery, Sigma. At a higher level CI negotiates in a centralized way with suppliers the most important commercial terms to be inserted in the procurement agreements that its members and Sigma will then conclude with producers. These terms include, in particular, discounts and trade spending that are the charges to be paid by suppliers to groceries for promotional, distributive and sale services. The CI members and Sigma may also individually negotiate with suppliers more favourable commercial terms than those obtained by CI itself.

The CI activities affect the procurement market in which its members buy the products to resell to consumers and the selling market where they retail such products to end-users. Whereas procurement markets are nationwide, selling markets have a local dimension. For the purpose of the application of Article 101 TFEU, the ICA qualified CI as a horizontal agreement between a number of supermarket chains having as main object the coordination of the negotiations of purchase agreements with suppliers. As the market shares of the parties exceed the thresholds in the Commission Guidelines on horizontal agreements, the competition impact of it has to be assessed in a detailed manner. In the ICA view the agreement under scrutiny might restrain competition in the procurement and selling markets. In procurement markets the CI might strengthen the buyer power of the parties with the ensuing risk to foreclose as efficient competitors that have weak bargaining positions. This fear reflects the concerns voiced by the ICA in its market investigation which indicated that for smaller suppliers was difficult to deal with the buyer power of larger groceries.

As for the competition impact in the selling markets, the ICA has identified a number of factors that appeared to be conducive to collusion. First, the agreement entailed the sharing of a high proportion of procurement costs, which account for the more important cost item retailers. Second, the centralized negotiation of procurement contracts may lead to reduce the margin of autonomy the parties had in deciding the marketing campaigns for the products of suppliers. And as showed by the sector market investigation, trade spending played an important role within the economic terms of procurement contracts. Third, through CI the parties might exchange sensitive commercial data, thereby resulting in a higher market transparency that might facilitate collusion.

So, what the Centrale Italiana case is about? As hinted above, the opening of enquiries into purchase centres such as CI has been somehow anticipated by the ICA market investigation in the agri-food sector, the conclusion of which are to large extent mirrored in the competition problems that, according to the ICA, may be caused by CI. Consistently with the ICA decisional practice on the competition appraisal of purchase agreement, also in Centrale Italiana the ICA feared that the buyer power of the parties, strengthened by the cooperation agreement, may be liable to negatively affect competition on the upstream procurement markets as well as on the downstream retailing markets.

And what about the possible economic efficiencies of purchasing agreements? Can such efficiencies be passed on to consumers and then be considered under Article 101(3)TFEU? The ICA has previously deal with the issue whether the efficiencies expected from a purchase agreement may set off the anticompetitive effects of it. In Coop Italia/Conad/Italia Distribuzione the ICA has exempted an agreement having as object the setting of a purchase centre as the efficiencies to be generated by agreement would also enhance the consumer welfare in terms of wider choice and improvement of quality product. In that regard, the ICA pointed out that, due to the fact in the selling markets the parties collectively hold a market share higher than 40%, the passing on of a portion of the efficiencies to the agreement to consumers seems unlikely