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OFT issues proposed decision against certain tobacco manufacturers and retailers over retail price practices

56/08    25 April 2008

The OFT has issued a statement of objections alleging that certain tobacco manufacturers and retailers have engaged in unlawful practices in relation to retail prices for tobacco products in the UK.

The statement of objections sets out the OFT's proposed findings against tobacco manufacturers Imperial Tobacco and Gallaher, and eleven retailers - Asda, the Co-operative Group, First Quench, Morrisons, Safeway, Sainsbury, Shell, Somerfield, T&S Stores, Tesco and TM Retail.

The OFT alleges that these tobacco manufacturers and retailers variously engaged in one or more unlawful practices in relation to retail prices for some or all of a number of tobacco products in breach of the Competition Act 1998 [see notes 4 and 5]. The alleged practices comprised:

1. Arrangements between each manufacturer and each retailer that restricted the ability of each of these retailers to determine its selling prices independently, by linking the retail price of a manufacturer's brand to the retail price of a competing brand of another manufacturer. The alleged infringements span different periods for different parties between 2000 and 2003 [see note 5], and

2. In the case of Gallaher, Imperial Tobacco, Asda, Sainsbury, Shell, Somerfield and Tesco, the indirect exchange of proposed future retail prices between competitors. The alleged infringements span different periods for different parties between 2001 and 2003. [see note 5]

John Fingleton, OFT Chief Executive, said:

'For markets to work well for consumers, it is a fundamental principle that pricing decisions should be made independently. If we find evidence of anti-competitive activity, we are prepared to use the appropriate powers to punish the companies involved and to deter other businesses from taking part in such behaviour.

'If proven, the alleged practices would amount to a serious breach of the law.'

At this stage it should not be assumed that the parties involved have broken the law, and the OFT will decide if the law has been breached after it has reviewed any responses to the statement of objections [see note 2].

NOTES

1.  The Competition Act 1998 prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK. The Chapter I prohibition covers anti-competitive agreements and concerted practices that have the object or effect of preventing, restricting or distorting competition in the UK or a part of it and which may affect trade in the UK or a part of it.

2. A statement of objections gives notice of a proposed infringement decision under the Competition Act 1998 to the parties involved. It sets out the facts on which the OFT relies, the objections raised by the OFT, the action it proposes to take and the reasons for it. This document is not a decision document and the parties have the opportunity to make written and oral representations in response to the alleged case set out by the OFT. Such representations (if any) will be considered by the OFT before any final decision is made.

3. The statement of objections will not be published. In accordance with the OFT's guidance Involving third parties in Competition Act investigations (pdf 289 kb), any person who wishes to comment on the OFT's proposed findings, and who is in a position materially to assist the OFT in testing its factual, legal or economic arguments, may request a non-confidential version of the statement of objections by contacting the OFT no later than 27 May 2008.

4. The addressees to the statement of objections are the following companies:

• Imperial Tobacco Limited
• Gallaher Limited
• Asda Stores Limited
• Co-operative Group (CWS) Limited
• First Quench Retailing Limited (which trades under several retail brands, including Threshers)
• Wm Morrison Supermarkets plc
• Safeway Stores Limited
• Sainsbury's Supermarkets Limited
• Shell UK Limited
• Somerfield Stores Limited
• T&S Stores Limited
• Tesco Stores Limited, and
• TM Retail Limited.

In addition, the OFT may, where applicable, seek to attribute liability to other companies, such as parent companies within the same corporate group, in which case the statement of objections is also addressed to them.

5. Further key background information is set out below on the infringements alleged against each party.

Linking the retail price of a manufacturer's brand to the retail price of a competing brand of another manufacturer:

• March 2000 to at least mid 2003: Gallaher, Imperial Tobacco, Asda, the Co-operative Group, First Quench, Morrisons, Safeway, Shell, Somerfield, T&S Stores and TM Retail
• March 2000 to early 2003:  Gallaher, Imperial Tobacco and Sainsbury
• March 2000 to mid 2003:  Gallaher, Imperial Tobacco and Tesco

Indirect exchange of proposed future retail prices between competitors:

• Late 2001:  Sainsbury to Tesco via Imperial Tobacco
• Early 2002:  Imperial Tobacco to Gallaher via Asda
• Early 2002: Imperial Tobacco to Gallaher via Somerfield
• Mid 2002:   Imperial Tobacco to Gallaher via Shell
• Early 2003:  Gallaher to Imperial Tobacco via Shell