Following various investigations in the retail sector,[1] the FCA opened another investigation to assess the joint purchasing agreement concluded in August 2018 between Carrefour and Tesco.[2] In this context, in October 2020, the FCA received commitment proposals from the two distributors, redefining the scope of their cooperation on private labels.

The FCA’s competition concerns

The Carrefour/Tesco agreement focuses on two areas: (i) the joint provision of international services for the benefit of suppliers, and (ii) the joint purchase of private label products, which is the core subject of the FCA’s investigation.

According to the FCA, the upstream market for the supply of private label products is characterized by contractual conditions that are typically unfavorable to suppliers (as contracts with distributors usually have a short duration and contain no exclusivity or volume commitment) and limit their market power. Moreover, a significant proportion of suppliers are small and medium companies, and sometimes very small businesses (“très petites entreprises” or “TPE”), which are particularly exposed to the changes in trading conditions that could result from the consolidation of Carrefour and Tesco’s purchases, such as price decreases or drops in volume. As a result, the FCA considered that the Carrefour/Tesco agreement was likely to further weaken suppliers of private label products and reduce their capacity and incentive to invest and innovate, ultimately harming end consumers.

The proposed commitments

To remedy the FCA’s concerns, Carrefour and Tesco offered several commitments aimed at redefining the scope of their cooperation on private label products. More specifically, Carrefour and Tesco offered, for a period of five years, to:

exclude from the scope of the agreement (i) several groups of fruit and vegetables that are directly purchased from French and European producers and whose production network has become more fragile as a result of the COVID- 19 crisis, (ii) house plants and flowers from France and the European Union, and (iii) French and European lamb.[3] In addition, the Parties committed not to reduce the current proportion of annual purchases made within the EU in these product families by more than 20%;

limit joint purchases in certain product groups (e.g., bread, cotton, several types of cheese, and tomato preserves) to 15% of the French private label products market;[4]

no longer exclude certain categories of companies from calls for tender to produce Carrefour and Tesco’s private label products, i.e., small and medium businesses for Carrefour and companies with an annual turnover of less than 3 million dollars for Tesco.[5]

Third parties (i.e., suppliers, competing retailers, trade associations, and consumer protection associations) may submit their comments on the proposed commitments until November 9, 2020 at the latest. Should the FCA consider that these commitments (potentially supplemented and amended) are likely to remedy its competition concerns, it may make the commitments mandatory and close the case.

[1]              In May 2018, following the communication of several (contemplated) joint purchasing agreements, the FCA opened an investigation into the agreements involving Auchan/Casino/Metro/Schiever and Carrefour/Système U.

[2]              Law no. 2018-938 of October 30, 2018 (dubbed the “Loi EGalim”) created Article L. 462-10 of the French Commercial Code, which grants the FCA the power to initiate ex officio proceedings in view of assessing the need for interim measures, with respect to joint purchasing agreements.

[3]              Article 3.2 of the proposed commitments.

[4]              Article 4.1 of the proposed commitments.

[5]              Article 5 of the proposed commitments.