Anyone up for some competition?

Competition. A term that describes the idea of individuals or companies striving for a greater share of a market to sell or buy goods and services.

Modern micro-economic theory argues that competition promotes companies to develop new products, services and technologies, which in the end results in a greater selection and better products for the target group, the consumers. Greater selection generates lower prices for the products especially when comparing to other markets where monopoly or oligopoly sets the premises (or rather the non-existing ones!).

Where competition exists one will also find the necessary laws setting the game rules. You see, there are players which are prepared to use methods that hardly can be considered compatible with competition on a free market. Cartels, monopolies or even state aid are examples of procedures where the involved might use methods that intend to exercise their market power and reduce other competitors chances within a certain field.

In the European Union the free flow of working people, goods, services and capital are of constitutional character and are regulated in the Rome Treaty. Competition is therefor of holy character. The purpose is simple. Competition are considered to increase economic efficiency in member states and removes barriers to trade between member states.

There’s no doubt which EU institution has been the most successful during the decades the community/union has existed. Perhaps it depends upon whom you ask but speaking for myself, representing the end-user/consumer, I am thanking the EU-court for its independence and interpretation of the Competition Law part of the treaty. If it weren’t for the court we wouldn’t have essential decisions such as:

8/74 Dassonville (on the subject of the right to parallel imports from other EU-countries, also called Grey products)

120/78 Cassis de Dijon (on the subject of member states not hindering goods from other EU-countries, in order to protect the domestic market)

86/82 Hasselblad (on the subject of exclusive distribution agreements in order to prevent competition)

Over the decades there has been several more decisions in the field of competition and clearly there are many out there, prepared to take any necessary steps in order to prevent competition or in an illegal way, protect their brand.

So, what has this to do with wine? Sadly, for the consumer, EU Competition Law won’t get all the bad guys. There’s a grey-zone where the more subtle obstacles are to be found, and those putting this into action are more difficult to get hold of. Perhaps what I am about to tell you hardly comes as a surprise but still; it needs to be said again and again. Why? Because this is the European Union for god’s sake; where the free flow of goods shouldn’t be hindered – not if micro-economic theory on competition are to rely on.

The following occurrences are all told to me from affected resellers in the wine bussiness – in EU-countries.

• Nothing new probably but I’ve heard from resellers that they are forced to offer certain producers wines at often ridiculously high end-user prices. If not, they have been told they won’t be supplied in the future. One reseller was told that if they continued using their right to put own prices on a wine, it undermined the market for the product in question! Can anyone tell me what that means? Besides, since when where producers allowed to fix prices from resellers?

• From another I hear about two importers buying the same product to the same country. One was given a considerably lower price. The reason for this was, according to the producer, bigger volumes. Still, the other importer with less ordered volumes, sells at a lower price and is because of that claimed to dump prices (by the other importer). When checking in to it, the smaller importer found out that the bigger one had one price in the catalogue but did sell at lower to customers who bought around two cases. Prices similar then to the other importer who was accused to dump. Phone call from the wine producer to the small reseller: “Adjust prices or we will discontinue supplying you”. When notifying them that the other reseller sold at same price (but just didn’t state it) they said they would demand them as well to raise prices.

• One wineshop told me that they were forced not to sell below the producer’s cellar door price (which in this case was a lot, I mean a lot, higher than the purchase price of the reseller). The reseller could do a decent margin out of the price they asked. Still, if continuing the future supply was in danger. Why? The answer given was that the producer needed to protect other resellers. Isn’t it touching? Producers taking a social and caring responsibility on their shoulders. Hoorah!

• One world famous brand from Italy refused to sell to a reseller in another EU-country given the reason they had an exclusive distributor there already. Upon contacting the distributor the quote given would have left the reseller with a gross margin of less then ten per cent if trying to stick with the two lowest competitors on the net.

• Another recognized brand said the same (exclusive distributor) and when the reseller checked with the distributor in the specific country they were told that they needed to buy four cases of an inferior wine as well for each case they wanted of the prestige wine. Perhaps something of a grey-zone but still; benefiting from the demand and requiring purchase of inferior wine is not fair trade.

• Next one; a reseller was told “we do not have any left” when contacting the world famous producer. Fine, they thought. Nothing to do about that. Next vintage – new call. Same answer which the reseller questioned. The response was: “You see, it is reserved for our regular customers who buy more than this wine from us. We can supply you but for every case you have to buy x cases of x or y or… “ Then came the next reason: “We know you and we do not care for the disruptions you cause to the price structure in the market.” This ended up in the fact that the reseller bought on the Grey Market using parallel import – not that the wine was of that great personal interest for the reseller, but knowing it attracted buyers, they needed to be able to offer it.

Conclusion: It’s a tough market out there. That’s the core and whole essence of competition. Sadly this leads to the search for scrupulous methods amongst too many trying to protect their current position, brand and controling their resellers. Big or small companies doesn’t matter; laws are seen as flexible but when they’re stepped at themselves, they shout loud and demand protection.

The issues for the reseller wanting to offer certain brands since it attracts buyers, are the fact that they won’t get any allocations if they’re not doing as told. And who dares to speak up knowing it will affect future business and realizing it eventually might even put them out of business? As always; the loosing party is the end-user; the consumer who ultimately pays the price.

How are you going to solve this Joaquín Almunia, responsible EU commissioner for competition?