Coca Cola’s Commitments in the Recent Competition Investigation

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Introduction

A commitment procedure has only recently been introduced to Turkish competition law practice. The procedure was instituted on 16.06.2020 with the amendment to Law No.4054 on the Protection of Competition, and has been utilized for over a year now. In this brief time frame, although the recent Coca Cola Satış ve Dağıtım A.Ş. (“CCSD”) commitment case was not the first of its kind, it was one of the most discussed among competition law practitioners due to the extensive commitments.

The Turkish Competition Authority (“TCA”) investigated CCSD, the distributor of Coca Cola products in Turkey, pursuant to Turkish Competition Board’s (“Board”) decision of 02.04.2020. This decision was based on the claim that CCSD has abused its dominance in the Turkish cola market. The investigation especially concerned the allegations that CCSD complicated the activities of its competitors and prevented entry to the market through restrictions on access to merchandising refrigerators, utilization of exclusivity clauses in their agreements, loyalty discounts, and similar practices that led to exclusivity.

During the investigation process, CCSD made an application in accordance with Communiqué No. 2021/2 on the Anti-Competitive Agreement, Concerted Actions and Decisions, and Communiqué on Commitments to be Submitted in Preliminary Investigations and Investigations on Abuse of Dominant Position published in the Official Gazette dated 16.03.2021.

The Board announced on 06.09.2021 that they had accepted the commitment package submitted by CCSD on 02.09.2021 within the scope of the negotiations held during the commitment process. Later on, TCA provided further details on the nature and contents of the relevant commitments. Based on these details, the Board decided to end the investigation without any determination of infringement or sanctions.

The commitments submitted by CCSD and accepted by the Board, as well as the Board’s assessments regarding the commitments, will be examined below.

The Commitment Package Accepted by the Board

The summary of the commitment package submitted by CCSD as disclosed by TCA is as follows:

  1. Three separate contracts instead of a single contract: With sales points such as grocery stores or markets, instead of the general comprehensive contracts which are created by CCSD to include their entire product portfolio; separate contracts will be signed for each of (1) “Cola Drinks,” (2) “Other Carbonated Products,” and (3) “Non-Carbonated Products.” The other carbonated products category will consist of “flavored soda” and “plain soda” sub-categories, while the non-carbonated products category will consist of the sub-categories of “water and mineral water,” “fruit juice and iced tea,” “energy drinks” and “sports drinks.” Product transitivity between these contracts and sub-categories will be terminated.
    For example, previously, each product from any category purchased by a sales point that made an agreement with CCSD based on a total sales amount of 100 units could be deducted from that total sales amount of 100 units specified in the contract. With the acceptance of the relevant commitment clause, the sales amount of each category will be determined separately, so the purchase of products from the cola category will not cause any change in the water and mineral water category quota of the sales point.
  2. Discounts, promotions and discounts will only be valid for the same type of beverages: Discounts-rebates-promotions defined by the CCSD for the sales points will be determined separately for “Cola Drinks,” “Other Carbonated Products,” and “Non-Carbonated Products” contracts, and separately for the flavored soda, plain soda, water-mineral water, fruit juice-ice tea, energy drinks, and sports drinks sub-categories. In other words, when a sales point purchases a product in the cola category from CCSD, the free product to be gifted by CCSD for this purchase cannot be from a different category, but can only be from the cola category. For example, flavored soda products cannot be given to the sales point as a promotion for purchase of cola products.
  3. There will be no exclusivity in non-carbonated products: CCSD’s single brand agreements in non-carbonated products will be terminated except in some exceptional cases. Therefore, CCSD will not be able to conclude an exclusive dealership agreement with the sales points (in other words, an agreement that would result in the availability of only CCSD products at the sales points) in terms of non-carbonated products.
  4. Contract periods will not exceed 2 years: Except for some exceptional cases, CCSD’s term contracts will be limited to two years, and if the term of a quantity-based contract exceeds two years, the sales point will be granted the right to terminate the contract without any penalty.
  5. Products of CCSD’s competitors that do not have merchandising refrigerators will be put in CCSD’s refrigerators: The scope of the 20% refrigerator access rule applied until today pursuant to the decision of the Competition Board of 10.09.2007 will be expanded. Accordingly, in sales points in the traditional channel and in the on-site consumption channel which are below 100 m2, 25% of CCSD’s refrigerators will be accessible to competitors’ products. In this framework, regardless of whether another competitor (other than CCSD) has a refrigerator in the sales point, 25% of other products of competitors without a refrigerator will be allowed to take place in CCSD refrigerators.
  6. Obligation to inform: CCSD will inform consumers and sales points within the scope of the accepted commitment clause (5) above regarding the refrigerator access rule. CCSD will also inform the sales points that currently have ongoing contracts within the scope of the accepted commitment clauses (1), (2) and (3) above.
  7. New implementation regarding purchase conditions: The phrase “(…) by way of purchasing regularly and continuously” in the contracts of CCSD will be preserved only in contracts containing cash investment (cash support given to the sales point), and will be removed from contracts in terms of provisions containing discounts-rebates-promotions other than cash investments. In addition, in terms of contracts that contain cash investments and include this phrase, the non-compliance of the sales point with the aforementioned phrase will not create any penal consequences for the sales point.
  8. Amendments and arrangements regarding the contracts that are currently in-force will be completed within 1 year from the notification of the reasoned decision, and compliance efforts in terms of other commitment clauses will be completed by 31 December 2021.
  9. In case of any subject not covered by the text of commitment submitted by CCSD, the text of the reasoned decision of the Competition Board dated 10.09.2007 will be taken as the basis.

The Board’s Evaluations on the Commitments

Upon examining the commitment package submitted by CCSD, the Board concluded that as a result of the commitment package:

  • With the amendment to the merchandising refrigerator access rule, CCSD’s competitors will have increased opportunity to have products available at the sales points,
  • Consumers will be provided with the opportunity to access more product options at the sales points,
  • Competitive concerns arising from the strength of CCSD’s product portfolio will be eliminated by separating the carbonated and non-carbonated products from cola products by also introducing sub-categories,
  • Competitive parameters in the relevant markets will become comparable in terms of competitors and sales points,
  • Awareness regarding the commitments to be implemented will increase via the notifications to be made by CCSD,
  • The shortening of contract periods (with some exceptions), will make the market more competitive,
  • With some exceptions, ending exclusivity in non-carbonated drinks will increase the level of competition in the relevant market.

Accordingly, indicating that the commitment package is proportional, is suitable for eliminating competitive concerns, and can be implemented within a short time and effectively, the Board decided to conclude the investigation by accepting the relevant commitment package and deeming the commitments binding.

Conclusion

The most significant of the commitments in the package is arguably the separation of the single contract for all products into three separate contracts for cola drinks, other carbonated products, and non-carbonated products. Coca Cola’s dominance is evident in the market for cola drinks, but not so clear in other carbonated drinks and even less so in non-carbonated drinks. As a result of this commitment, CCSD will not be able to tie/bundle all of its products in a single contract, and thus, will not be able to leverage its high market power and bargaining ability in cola products to gain advantage in the other two. In addition, the 5% increase in CCSD’s obligation to allow its competitors’ products in its merchandising refrigerators will also affect the availability of competitors’ products, likely resulting in a marginal market share loss. These commitments will likely hurt Coca Cola’s business in markets other than cola products, where it is the strongest.

Once the reasoned decision of the Board is published by TCA in the upcoming months, more details of CCSD’s practices, their effects, the scope of the commitments, and the Board’s determinations on how the commitments will address competitive concerns will become available.

At any rate, this is one of the most interesting and elaborative commitment cases in Turkish competition law practice yet, and it will be utilized as a milestone precedent for the cases to come.


 (Authored by Can Yıldız and first published by Erdem & Erdem on October 2021)

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