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Bogdan Chiritoiu, President of the Competition  Council: „The suppliers are much weaker from point of view of power of negociation than the retail chains".

09/10/2014 09:17

After almost five years, the retail food investigation the Competition Council is nearing completion. Big names in Romanian retail and multinational companies involved more or less vertical dictation of prices. Backstage arrangements that shows well for the moment only the visible part of the iceberg. There are only four large retailers who completed arrangements cost?

Details of the investigation the Competition Council, along with other topics of Romanian retail, in an interview with Mr. Bogdan Chiritoiu, President of the Competition Council.

 

Brandprivat.ro  - The investigation in food retail is getting near the end. Witnessing a premiere, the list of the companies suspected of having vertical agreements includes important names as Metro, Selgros, Mega Image or Interex.

Bogdan Chiritoiu - This is an investigation started in 2009 following a two years market study and data collected from all the retailers. Then there also was a scandal concerning the code of good practise, retailers' reproachable behaviour and so on.

The competiton was going well in that sector and we had no objections to the shelf charges. There were some question marks about management of the category and on MFN (the clause of most favoured nation), clause which, if applied in retail area would mean "give me the lowest price you give to anybody else". We mentioned that here it was a potential of becoming anti competitional. We did not enlist them as being anti competitional but we only mentioned the need to supervise that area. From that report, which I believe in its substance is advantageous to retail industry, and from the way the things evolved from 2009 till now, I have no reason to doubt the conclusions of that report. Anyway   there were some indications in connection with contracts or quasi-contracts like the promotional forms, which suggested that in some cases, minimal prices would apply. So, the retailers and their suppliers fix minimal prices for selling certain products. But in our view this is anathema. Whenever there is a conditioning saying that you are not allowed to resell below a specified price, or not allowed to sell to somebody else below a certain price, it means in our view a restriction of the competition which can ultimately touch the consumer's welfare. Investigations were conducted on these themes, too. Look, five years have passed since 2009 till 2014, a series of procedural problems appeared, we had to face some certain law firms and we were forced this summer to change the law. Let us restrict these possibilities of delaying the cases, since we could have closed the case last year. It would have been  ready last year, but  having to repeat myself, there were certain procedural problems created by the people in some law firms. And after five years we finally close the case. I do not see it as a premiere. Yes, but I do not see why would it be different from many other cases we deal with. I mean I would not want to be understood that our target is mainly the retail industry, that we have a fixed idea to find them wrong. It is an investigation like many others we conduct. There are nearly 60 total investigations. It is a vertical dictation of prices, we already handled many cases of this kind - and for the most cases we ordered sanctions, some cases were lodged to the Court, so from this point of view it is not a special case. It may look special because these are big companies, with large turnovers and second, this is an area of very large interest, connected to welfare of the population. So, it is a sector bigger and more important than others. Otherwise it does not contain any very complicated intellectual connotation.

Brandprivat.ro  - The Competition Council's announcement is released when the retail chaines are starting the negociations for the next year contracts. Do you think this case can be a signal for other retailers to alter or adapt their contracts in case of similar situations?

Bogdan Chiritoiu - According to what I was told, but you already know it better, the simple opening of the investigation in 2009 induced a change or an adjustment of the industrial practising. Anyway, the Competition Council sanctioned any vertical agreement, so I truly believe that this kind of  agreement between suppliers and retailers conditioning the selling price of the products by one part or another, can be found in the Romanian economy in many situations. And we have repeatedly said that this is not all right. There are many Court decisions which confirm our point of view, and would not this be a signal that this reality will be step by step accepted by various Romanian industries, that it is not the job of one part at what price is the other part selling or re-selling the product? Once you sold the goods to someone it is his business what is he doing with it and you are nomore entitled to put conditions, and inverse, whenever you buy some goods from someone you have no right to tell him where and at what price to sell the same goods to others.

Brandprivat.ro  - You mentioned those changes you want to be included into procedure to help urging of the settlement of certain cases in the same manner as having witnesses can help or influence carrying out of an investigation.

Bogdan Chiritoiu - There is indeed a procedure now with a moderate success, I would say recognition. As for this, there area few companies who acknowledged their fault. In exchange of the admittance we can allow a diminish of the sanction. The advantage of recognition is for us the fact that it  reduces the number of trials in the law court, allowing us to use the resourses for new cases. Instead of three years sitting with lawyers to doccument the defence plus a supporting team-case for the lawyers  who will need the support of the team who was working on the case, thus, instead of blocking these resources, we can use them for new cases. And then it is more convenient to allow a reduction of the penalty - it also is in the public interest to a smaller sanction if it leads to a diminish of action in court of law. This procedure has a certain success with the companies we sanction. The disadvantage is that such recognition cannot be made till the investigation is finished. Or if you need two years in average for an investigation, but sometimes three years are needed - this one on retail business took five years - it would be more profitable that such recognition to be declared nearer the beginning of the investigation, let's say after three months or after six months. Then our efforts would be indeed saved even more. And this is what I would want to be able to include in the legislation next year. To be able to have this kind of earlier settlement of the cases.

Brandprivat.ro - In the investigation on food retail there are four retail chains mentioned.

Bogdan Chiritoiu - Yes.

Brandprivat.ro - But they did not act alone, they were with the respective suppliers together.

Bogdan Chiritoiu - The report identifies both parties as guilty. Whenever we deal with a contract, it means that the contract is an understanding representing the will of the parties. So, if it is illegal then there is a percentage of guilt on both parties. It is another discussion whether it is equal or not, but a percentage of the common guilt must be into an illegal contract.

Brandprivat.ro - And on the other side of the barricade there are...

Bogdan Chiritoiu - 22 companies. Who maybe will say that their negociation power is lesser. In general,yes. Not always. But in principle yes, the suppliers are much weaker from point of view of power of negociation than the retail chains.

Brandprivat.ro - Angst - Mega Image transaction. The file is submitted to you and is in progress.

Bogdan Chiritoiu - We are still discussing. Our partner is Mega-Image. We always discuss with the buyer, not with the seller. He is applying for the permission to run the transaction. So we still under siscussions with Mega-Image, with their lawyers respectively, to clarify the figures. Before starting the annalysis, the figures and market share must be established, to understand the reality we are talking about. Once clarified how big it would be, we take into consideration the relevant markets. We define  these as an area around the store we annalise. We consider that a consumer can go to stores which are at a distance of about 10 minutes by car.

Brandprivat.ro - Theoretically this is a first compared with Auchan-Real transaction because you have to identify now some areas at city level. Considering how strong Mega-Image is on capital city market, does it mean that these areas will be reduced at sector level or even zone?

Bogdan Chiritoiu - That is exactly what I said. Concentric circles of 10 minutes radius by car as from the store we annalise. We consider this is the zone of attraction for a store. We are interested to know if the consumers have other alternatives in that zone.

Brandprivat.ro - Would it be possible that the tranzaction is not finalised for all stores?

Bogdan Chiritoiu - It is possible. This is what we look at: if among the 20 stores there are some which would lead to high concentration of Mega-Image stores in that respective area. Our term of reference is 40% market share. A market share which we can define either pending the turnover or pending the space. So, like these are the two measures we are normally looking at. How much you sell or how large is the surface to exhibit the goods. And when all is clear, I repeat, how big are the market shares, we see - as it is very probable -  zones where the market share overpass 40%. What is to be done ? We want to approve the transaction, normally. We start with the premise that two companies are willing to make a transaction and we must make it easy as much as possible. We block it only in extreme. We have to see in the areas where are high market share if the competition is indeed perturbed and if the people do not have enough alternatives, and then we shall discuss with Mega Image, mostly on the possibility of having compensatory actions. These can be various commitments, like it was the case with Auchan. By then (Auchan) declared that in the two cities which interested them - Targu Mures and Craiova - "no other new stores will be open and we shall not take advantage of our strong position on the market. The prices for a series of basic products will not be higher than 5% compared with the prices of similar goods in other stores in the area". These are the commitments in the Auchan - Real case. In the Mega Image case maybe similar commitments will be declared, or we may  take in extreme structural decisions  which would mean to force Mega Image to renounce to a series of stores.    

Brandprivat.ro - Do you consider that the system cash&carry is still working in Romania?

Bogdan Chiritoiu - Back in 2009 we considered cash&carry a distinct retail market. Our doctrine remained the same. We did not change our opinion. Well, we have to periodically update our studies, but for the moment the 2009 conclusion is still valid.

Brandprivat.ro - On April a bill was approved on the ways of cash payment.There is a special article in the law for the cash&carry channel, allowing payments upto 10,000 lei, while for the rest of retail chain cash payments  are limited to 5,000 lei. Why I have asked you, is because in the end, those laws especially made for the cash&carry format, due to market evolution do nothing else than block the innitiative of new competitors.

Bogdan Chiritoiu - The law considers this segment a distinct market from the very beginning. It concers mostly the firms and not individual clients, so that the same rule of cash as for the transactions between the firmes is applicable. We shall reanalyse this segment next year when the the law on limitting cash payments between persons individual and companies will be submit to discussion in parlament. By then this item will be also analysed.

Brandprivat.ro - What is your opinion on mechanism of promotions. A price is declared without having the respective stock mentioned. There are in Romania now only two retail chains who declare  the stock behind the promotions. Why I believe that declaring the stock is necessary? There are promotions which do not intend increase of volume sold but image only. A small price created an image in the consumer's eyes. The flyer is printed and can be seen several days. This is the image remaining in the eyes of many and not the empty shelf, with no stock. Theoretically this is an anti-competional practise.

Bogdan Chiritoiu - I do not have an opinion on this matter. At first glance I would say this is problematic and also at first glance I would say this is a problem for ANPC. I think it  is nearly cheating  publicity kind. If I say come to me to buy sugar with two lei and there is no sugar on my shelf, it seems a deceitful act towards the clients, and the settlement would be of ANPC competence.

Brandprivat.ro - The quantity is in fact showing the retailer's strength. Yes, as you say  the ANPC could be on the price.

Bogdan Chiritoiu - ANPC has the legal attribution to punish any deceiful publicity. I repeat, if somebody says come to me because I have a cheaper product and when you go to the shelf the stock is over, he cheated the man. I told him to come and he does not find the thing promissed by the  advertise. For this reason I would say that if it is to be, a rule saying well, whenever you make a promotion, make it sure that a stock large enough, a reasonable stock of the products you advertise is available to enable you to sustain the respective promotion. I think that such rule would be a task for ANPC. It is just a personal hot opinion, without consulting our experts.

Brandprivat.ro - How do you see currently the Romanian retail?

Bogdan Chiritoiu - We are content that a large number of international chains are present in Romania. There are more chains present here than in other countries of the European Union. We are content that the prices are better than in other countries of U.E. Eurostat has mentioned that our prices are sensibly lower in average than the average prices in the U.E., and two, our Institute of Statistic tells us that the prices for food products are increasing slower than the prices at economy level. So the inflation on food products is lesser that the general inflation. These things are good for the consumers. With no direct connection with competition, it is a good thing that we have an increase of the modern commerce. It is a commerce which observe the fiscal legislation,  so it is a fiscal commerce and the state is collecting taxes. There are many positive elements. VAT reduction for bred was an exercise if I can name it like that, or an experiment which confirmed the fact that the food market is competitionally working well. And the fact that VAT reduction was almost entirely or in large proportion passed towards the cvonsumers, is again a signal of competitional good functioning. This does not mean that I have an absolute positive opinion about  VAT reduction. But competitionally, the way the market reacted to this change, is a good thing for us. There are many good things in the retail market. What we would want? To see as many Romanian products as possible. This is a thing which requiring time, but it can be accelerated through public policies. Let's facilitate displaying of Romanian products on the stores shelves. It is a good thing that as from two years ago we are nolonger food importers, but surely a country with Romania's agricultural potential should have a much stronger position in the commerce of food products. We are still deficient in fruits and vegetables, so anything can be done to increase again  penetration of Romanian fruits, and important target for the national policy. This probably shows both the support for the Romanian producers and combat custom and tax evasion.

Brandprivat.ro - Thank you very much.


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