Sector News

Mondelēz targeted in EU price-fixing probe

January 31, 2021
Consumer Packaged Goods

The European Commission (EC) has launched an antitrust investigation to assess whether Mondelēz International has restricted competition in a range of national markets for chocolate, biscuits and coffee.

The probe will examine if the snacks giant has hindered the cross-border trade of these products between member states, breaching EU antitrust rules.

The EC is concerned that Mondelēz may have restricted the so-called “parallel trade” of its chocolates, biscuits and coffee between EU countries through agreements and unilateral practices.

Traders and retailers try to procure products in the internal market where the prices are lower and trade them to markets where prices are higher, says the EC. This generally leads to price decreases in countries where prices are higher.

Breaching competition rules?
Restrictions to such parallel trade can lead to the isolation of a national market whereby the manufacturer or supplier can charge higher prices to the detriment of consumers. Restrictions to parallel trade can also lead to less product diversity.

There is concern that Mondelēz is blocking trade between countries where the prices of products are different.

Regulators in Brussels opened the investigation yesterday, and Chicago-based Mondelēz – one of the largest producers of chocolate, biscuits and coffee in the trading bloc.

“We learned about the European Commission’s announcement that it has opened a formal investigation into Mondelēz International’s practices related to the cross-border supply of products within the European Economic Area. We will work constructively with the European Commission as it conducts its review,” a Mondelēz International spokesperson tells FoodIngredientsFirst.

Snacking accelerates throughout pandemic
This investigation may be putting a damper on Mondelēz’s Q4 and full-year 2020 results, which showed how it has gained market share during the COVID-19 pandemic as at-home snacking soared.

Key highlights include net revenues increasing 5.6 percent, primarily driven by Organic Net Revenue growth of 3.2 percent.

“2020 was a successful year for Mondelēz, including record share gains, in a challenging operating environment. Our categories were resilient, with the exception of gum, which represented 5 percent of our revenue in 2020,” says Dirk Van de Put, chairman and CEO.

“The strength of our brands was evident, as was the dedication of colleagues around the world who executed with excellence in difficult circumstances. We made meaningful progress with our strategic agenda in 2020, continuing to increase investment in brands and capabilities, simplifying our portfolio, expanding into adjacent categories and making acquisitions in high growth areas of snacking.”

“We moved quickly to mitigate incremental COVID-related costs and delivered on our commitment to generate strong cash flow. We enter 2021 in a strong position financially and in the marketplace, which gives us confidence that we can deliver on our long-term growth targets in 2021 and beyond,” he explains.

Free competition
“Chocolates, biscuits and coffee are products consumed by European citizens daily. We are opening a formal investigation to see whether Mondelēz, a key producer of these products, might have restricted free competition in the markets concerned by implementing various practices hindering trade flows, ultimately leading to higher prices for consumers,” says executive vice-president Margrethe Vestager, in charge of competition policy.

“Trade in the internal market can lower prices and increase the variety of products offered across member states,” she notes.

Mondelēz manufactures chocolate, cookies, biscuits, gum, confectionery and powdered beverages.
Its portfolio includes several billion-dollar components. These include cookie and cracker brands Belvita, Chips Ahoy!, Oreo, Ritz, TUC, Triscuit, LU, Club Social, Sour Patch Kids, Barny and Peek Freans.

Chocolate brands include Milka, Côte d’Or, Toblerone, Cadbury, Green & Black’s, Freia, Marabou, Fry’s and Lacta, while gum and cough drop brands include Trident, Dentyne, Chiclets, Halls and Stride.

Specifics of the investigation
The Commission has laid out the specifics of its investigation. It will investigate certain potentially anti-competitive practices by Mondelēz, including:

– Possible limitations of the sales territories within the EU through agreements that determine in which member state a trader can or cannot sell the products, or that restrict passive sales.

– Possible curtailing of parallel trade through agreements that raise prices or limit volumes specifically for customers that trade the products across member states.

– Possible agreements with customers not to engage in parallel trade or not to procure products from parallel trade, inter alia, in exchange for payments or other forms of compensation.

– Possible restrictions on the languages used on packaging either unilaterally or through agreements with traders, thereby creating friction on sales to certain other EU member states.

– Possibly refusing to supply certain traders with a view to restricting imports into certain markets.

The EC notes that, if proven, the agreements and practices under investigation may create anticompetitive obstacles to trade within the EU Internal Market in breach of Articles 101 and/or Article 102 of the Treaty on the Functioning of the European Union (TFEU).

This formal opening of an antitrust investigation comes after the EC carried out unannounced inspections at the premises of Mondelēz in November 2019. This was part of the EC’s own-initiative investigation of suspected anti-competitive practices covering the EU.

What happens next?
There is no legal deadline for bringing an antitrust investigation to an end. The duration of an investigation depends on several factors, including the complexity of the case, the cooperation of the undertaking with the EC and the exercise of the rights of defense.

The EC also notes that consumers, member states’ competition authorities and the European Parliament have repeatedly voiced concerns that prices for common food and drink products can significantly vary between member states, including between neighboring member states.

They have also alleged that operators raise obstacles to trade from member states where products are cheaper to member states where products are more expensive. Therefore, they have called upon the EC to address these obstacles and ensure more convergence of prices inside the EU Internal Market.

Future of snacking
Mondelēz has been broadening its portfolio and strategy recently moving toward high-growth categories and offering consumers a broad range of snacks in key growth channels and categories.

Last February, it acquired a significant majority interest in Give & Go, a North American company in fully-finished sweet baked goods and owners of the “two-bite” brand and the “Create-A-Treat” brand known for cookie and gingerbread house decorating kits.

In June 2019, the US multinational strengthened its snack portfolio with Perfect Snacks’ acquisition, a supplier of refrigerated nutrition bars.

This was followed by the acquisition of Tate’s Bake Shop, a fast-growing, premium cookie and baked goods brand, for approximately US$500 million in 2018.

In November 2020, the EC published a study on territorial supply constraints in the EU retail sector. The study also suggests that certain suppliers implement several practices that restrict the parallel trade of groceries to European consumers’ disadvantage.

by Gaynor Selby


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