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Dominance in Finland's grocery retail market

10/01/2014

Competition analysis: Following the Finnish Competition and Consumer Authority's (FCCA) inquiry into competition in the grocery sector, the Finnish government has introduced changes to the Finnish Competition Act which took effect on 1 January 2014. Niko Hukkinen, specialist in EU and competition law and partner at Roschier in Helsinki, and Sari Rasinkangas, senior associate, explain the changes and consider the implications for Finland's grocery market.

Original news
The new section 4a of the Finnish Competition Act concerning dominance in the grocery retail market entered into force on 1 January 2014.

What's the rationale for this development and why now?

The reason behind enacting the new provision is that the Finnish market for retail trade of groceries is very concentrated--the two largest players in the market, the K Group and the S Group, have a combined market share of over 80%. In a report on a sector inquiry into the grocery sector published in 2012, the FCCA found that large retail groups have significant bargaining power in the grocery sector which enables them to adopt unreasonable trade practices, such as demanding gratuitous marketing payments from suppliers and applying unfair trading conditions. However, since the FCCA found that neither of the largest retail groups hold a dominant position in the market for retail trade of groceries in Finland, it has not been able to intervene in such unilateral practices.

What are the actual provisions of section 4a?

The new section 4a of the Competition Act states that a dominant position shall be deemed to be held by one or more business undertakings or associations of business undertakings holding at least a 30% market share in the market for retail trade of groceries in Finland. If this market share

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threshold is exceeded, abuse of dominant position can be found in both the retail and procurement markets. These provisions aim to ensure the efficient functioning of competition in this highly concentrated sector. Under the new provision, both the K Group and the S Group are considered to hold a dominant position and, thus, they are required to comply with the rules concerning abuse of dominance. The provision should therefore give the FCCA better opportunities to prevent the two largest grocery retail groups from maintaining unreasonable and discriminatory trade practices and to ensure that the grocery retail groups do not foreclose their competitors from the market by other means than competition on the merits. The provision is expected to benefit suppliers, as their opportunities to get their products to the retail groups' assortment on equal and reasonable terms should be improved. This, in turn, will lead to increased choice for consumers.

What are the implications in practice of companies caught by this new dominance threshold?
Section 4a does not amend the assessment of abusive conduct. Companies exceeding this market share threshold are subject to the provisions prohibiting abuse of a dominant position contained in section 7 of the Competition Act, which corresponds to the Treaty on the Functioning of the European Union, art 102. The new provision does not have an impact on the structure of the grocery market as such, but only enables the FCCA to intervene in individual cases of abusive conduct by grocery retail groups which hold a market share in excess of 30% in the Finnish grocery market. However, practical effects of the new provision can already be seen. Since the provision entered into force at the beginning of January 2014, the FCCA has already announced that it is initiating further investigations into, among other things, customer loyalty schemes and their effects on competition and access by suppliers to retailers' sales data. Furthermore, the FCCA will also examine the practices related to private label products more closely.

What other concerns does the FCCA have around grocery retailing?
The FCCA has also voiced other concerns regarding the functioning of competition in the grocery market. These include:

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that regulation on the location of grocery stores and municipalities' land policy may hamper effective competition in the grocery sector that complex and detailed regulation on land use strengthens the position of market leaders in the grocery retail market

For instance, the FCCA considers that establishing new large-scale grocery stores has been made almost impossible despite the fact that such grocery stores are an essential part of modern retail

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competition in terms of effectiveness and consumer behaviour. In a report published in June 2013, the FCCA gave several recommendations to improve the situation in respect of zoning and land use. In addition, the FCCA noted that the location of the retail stores of the Finnish alcohol monopoly, Alko, has a significant effect on competition in the grocery retail market and that the current location of these retail stores strengthens the position of the two largest grocery retail groups. Therefore, the FCCA considers it important that, when deciding on the location of future Alko retail stores, the state ownership steering unit takes into consideration the effect of the location on competition and, where possible, puts Alko retail stores also near grocery retail stores of smaller retail groups.

What are the implications for a presumption of dominance in other markets?

The new provision only concerns the grocery market. Thus, the provision does not have any effects on the assessment of dominance in any other markets in which the large grocery retail groups may operate. Interviewed by Jenny Rayner. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.