ICE CREAM EXCLUSIVE DISTRIBUTION CONTRACTS (Conclusion of the investigation)
PRESS RELEASE
At the conclusion of an investigation initiated last May, the Italian Competition Authority decided that the agreements between the main ice cream producers and the impulse ice cream retailers constitute a violation of Section 2 of Law no. 287/90, with respect to the exclusive distribution clauses.
The Authority found that the contracts arranged by producers provide for the obligation on retailers to purchase and distribute only one brand, in such a way as to hamper dealers from selling rivals'products in their own outlets.
The exclusive contractual tie is very binding, in light of the high penalties which are provided for if and when dealers do not comply with it. The exclusive purchase contracts concern 162,000 outlets, accounting for 68.1 per cent of the total outlets.
On the average, nearly 73 per cent of the total sales from the retail recorded by the parties involved in the proceeding derive from outlets tied down to the exclusive distribution clause. The Authority ordered the parties concerned to cease immediately to undersign, advocate or apply the exclusive clause contained in their contracts, as well as to impose any penalty to dealers. In addition, the parties concerned are required to file by 180 days a report regarding the measures adopted to remove the infringements and restore effective conditions for competition on the market.
Italy is the Europe's largest impulse ice cream market. The Italian market is more than twice the German market and more than three times the Spanish one. Ice cream production amounted in 1995 to 123,000 tons, equal to 2,200 billion lira at consumer prices.
The structure of supply is particularly concentrated: in fact, the first two companies, Unilever Italia (Algida, Sorbetteria di Ranieri, Eldorado) and Nestlè Italiana (Motta, Antica Gelateria del Corso), hold a market share of 70.1% and the first four companies cover altogether 89.1% of the whole sector. This market structure is determined by various factors which limit market access possibilities to new competitors, as, notably, the high distribution costs, the need of high financial capacity to develop technology and know-how, as well as to invest in advertising expenditure. In particular, an important element which deters the entry of new firms is the ordinary commercial practice consisting of supplying fridges in free loan to retailers on behalf of ice cream producers. Such a freezer exclusivity system prevents dealers from storing rivals'products into their fridges.
The existence of exclusive distribution networks in that concentrated market strengthens barriers to entry and squeezes out new rivals from the market. It is to be noted the dominant position of the parties concerned with regards to the market share and the number of tied outlets. In this context, therefore, the exclusive distribution clauses contained in the purchase contracts violate Section 2, subsection 2, of Law. no. 287/90.