April 9, 2012

French Competition Regulators Bring Pet Food Manufacturers To Heel

The Autorite de la Concurrence, the French competition authority, has slapped fines on three leading French pet food manufacturers that restricted competition in premium dry dog and cat food sold in specialty outlets such as pet shops and veterinary offices. 

The manufacturers are Nestle Purina Petcare France SAS, Royal Canin SAS (owned by Mars, Inc.), and Hill’s Pet Nutrition (owned by Colgate Palmolive Co.).  Collectively, they sold 70 percent of Frances’ premium dry pet food during the relevant period of 2004 to 2008.   

Nestle Purina and Royal Canin sell their pet food to wholesale distributors, who then sell it to retailers, who in turn sell it to pet owners.  Their wholesaler agreements restricted resale territories and prices, and “set up distinct and impenetrable distribution systems” that “partition[ed] the markets . . . for some product ranges.”  The results were reduced choices and increased costs, which were passed on to consumers.

Hill’s, which markets its pet food only through veterinary offices and specialty stores, prohibited its distributors from exporting its products outside France.  This prohibition had little or no impact, however, because it pertained only to veterinary offices and was never actually applied.  

Nonetheless, the Autorite noted that on the whole, these agreements could cause significant damage because the price elasticity of demand for pet food is low.  The reason is that pet food “elicit[s] an emotional investment for end consumers, who are vulnerable to brand loyalty.”      

Nestle Purina was fined 19.5 million euros, Royal Canin 11.6 million, and Hill’s 4.6 million, for a total of 35.3 million euros ($46.7 million).

In setting these fines, the Autorite considered the duration of the restrictions and each company’s global reach and financial resources.  It also considered prior offenses – which probably hurt Royal Canin, which was sanctioned in 2005 for abusing its dominant position.  Hill’s, on the other hand, likely owes the comparatively small size of its fine to the minimal impact of its restriction.  Nestle Purina’s and Royal Canin’s fines also were reduced, by 18 and 20 percent respectively, because they declined to dispute the Autorite’s allegations and committed to reinforce their competition compliance programs.

Categories: Antitrust Enforcement, International Competition Issues

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