The Italian Competition Authority finds a foreclosing practice in the ice cream market

In Unilever/Distribuzione Gelati the Italian Competition Authority (ICA) has imposed a € 60 million fine on Unilever for abusing its dominant position in the market for the impulse ice cream by a complex foreclosing strategy. To pursue this strategy, Unilever invited the managers of bathing establishments and bartenders to not sell anymore the ice creams of La Bomba, which produced ice-lollies generally sold in the seaside resorts of Central Italy. Unilever also threatened retailers selling competing products with the imposition of financial penalties, termination of the supply contracts and refusal to grant the rebates they were entitled to.

Unilever had a dominant position in the relevant product market, the wholesale market for packaged ice creams, due to its high market shares and the strong reputation enjoyed by the Algida brand under which it marketed its products.

The theory of competition harm on which the ICA relied to establish the Unilever competition liability was that the dominant firm pursued an abusive foreclosing strategy consisting of exclusive purchasing agreements whose binding force was strengthened by additional commercial practices. The supply contracts concluded by Unilever with the majority of its retailers contained exclusive purchasing obligations requiring the retailers to buy all the contract products from the dominant firm. These arrangements were accompanied by incremental and conditional rebates that further increased the switching costs for retailers intending to buy the whole or part of their requirements from other suppliers. There rebates were selectively granted by Unilever when its market position was threatened by a competitor as La Bomba did with its ice-lollies that were highly appreciated by consumers. Moreover, Unilever also concluded framework agreements with trade associations regrouping the managers of bathing establishments. These agreements were a tool for Unilever to compensate the trade associations to monitor their members compliance with Unilever directions.

Though under EU competition law, exclusive purchasing agreements put in place by dominant firms are presumed to be unlawful, the ICA substantiated the illegality presumption by adducing several factors and circumstances showing that Unilever was liable to prevent the entry of expansion of its competitors. By the exclusive purchase agreements and the other loyalty-induce commercial practices, Unilever reached outlet exclusivity covering a large portion of the relevant product market. All that effectively restrain competition in this market as reflected by the Unilever growing market shares and by the fact that many retailers stopped selling the products of La Bomba.