Rocky road ahead

Published On 10/12/2012 | By Fiona Chong | Cartels, Litigation

Cadbury, Hershey, Mars and Nestlé, which collectively account for 76% of the chocolate market in the US, have been sued by a grocery wholesaler for price-fixing in the District Court of Kansas.

The action was brought by Associated Wholesale Grower (AWG), a retailer-owned grocery wholesaler in the US, which purchased chocolate products from the defendant companies for supply to retailers.

In its pleadings, AWG alleges that the chocolate manufacturers coordinated price increases on three occasions between 2002 and 2008, in an attempt to improve their profitability in the face of a declining market for chocolate.

Although the manufacturers publicly attributed these price increases to increased input costs, AWG has disputed this claim, pointing to evidence of stable costs for cocoa and sugar over the relevant period. Cocoa and sugar account for 25% and 16% of the defendants’ input costs respectively.

AWG contends that the collusion allowed the manufacturers to increase their prices and profits, despite stable or declining demand for chocolate. Although brand loyalty influences demand for chocolate products, such products are by and large substitutable for one another and price is therefore the most important competitive factor in their sale. Hence, AWG argues that, absent unlawful agreement, the manufacturers could not profitably have increased their prices under the subdued market conditions prevailing during the relevant period.

These claims draw heavily upon investigation and prosecution of this conduct in Canada – particularly admissions made by Cadbury in order to get immunity. To add to the confectioners’ woes, the United States Department of Justice also began an investigation into their conduct in around 2008, as did the competition regulator in Germany and the European Commission. There is no news yet on whether those regulators are also planning enforcement action, but it seems AWG didn’t want to wait to find out.

Interestingly, the pleadings indicate that AWG was a plaintiff in the 2008 multi-district litigation against Cadbury for the same conduct (which settled in 2011), but had opted out before the settlement was finalised.

Fiona Chong & Louise Beange

Photo credit: maebmij / Flickr / CC BY-SA 2.0

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