9 December 2021
The Fair Trade Commission (FTC) issued on October 22, 2021, the Gong-Chu-Zi-110074 disciplinary letter against Presicarre Co., Ltd (Carrefour), reported by 13 unions for improper solicitation of sponsorship for newly opened stores. The letter concludes that, after merging with Wellcome, Carrefour’s behavior to solicit, based on suppliers’ previous contracts, new-store sponsorships from suppliers who had been supplying Wellcome’s 196 supermarkets before Carrefour acquired them via the merger constitutes an unfair behavior of considerable impact on transaction orders. Thus, Carrefour is in violation of Article 25 of the Fair Trade Act and shall cease such action immediately and be fined NT$ 150 million. The following is a summary of the reasons for disciplinary action:
1. Carrefour has a relatively dominant position in the market to suppliers
The FTC points out that most suppliers subject to Carrefour’s solicitation are middle to small-sized businesses, the scale of which is significantly smaller than that of Carrefour. Moreover, Carrefour is the primary, sometimes even the largest, trader of these suppliers. Thus, if they sever their trading relationship with Carrefour, it would be hard to imagine they will find another opportunity in short order to compensate their loss from such a severance. Therefore, Carrefour is considered as having a relatively dominant position in the market to suppliers.
2. Carrefour’s solicitation of sponsorship from suppliers who had originally supplied for Wellcome is evidently unfair
The FTC held that although Carrefour’s software and hardware upgrade and new decorations to supermarkets obtained through its merger with Wellcome is beneficial in boosting the sales of suppliers who had originally supplied for Wellcome, these suppliers have not acquired any new sales channel. Therefore, it’s not comparable to opening a new store. Additionally, Carrefour is soliciting 2021’s new-store sponsorship based on Article 17 of the supplying contract made in 2020, which states that if the written contract has not been entered into by the parties prior to the new fiscal year, the parties may follow the terms and calculations under the previous contract. However, the suppliers can only determine the amount of sponsorship for newly opened stores on the basis of past information and experiences when entering into the contract in 2020. Furthermore, in this case, Carrefour obtained a large number of Wellcome supermarkets in just a few months from the merger, none of which are hypermarkets. Accordingly, using the standard with regards to newly opened stores in the 2020 contract as the basis of soliciting sponsorship from suppliers who had been supplying Wellcome’s supermarkets before the merger with Carrefour is evidently unfair.
3. Carrefour’s solicitation of sponsorship is evidently unfair, and enough to impact orderly transactions
The FTC pointed out that, in addition to improperly passing on channel operating costs to suppliers, Carrefour’s behavior creates an unbalanced transaction of a vertical supply system, which undermines the market’s fair and reasonable transactions order and may force the suppliers to pass the fees onto the commodity, affecting consumer’s rights and interests. Additionally, these suppliers would have to pay 196 times the sponsorship of a newly opened store. Such a payment is enormous and has led 13 unions of foods, cosmetics, cleaning products, and other similar industries to report to the FTC. Accordingly, since the transactions potentially involved are relatively large, Carrefour’s unfair action is sufficiently evident to impact orderly transactions.
4. Conclusion
In conclusion, the Fair Trade Commission held that Carrefour’s sponsorship solicitation after its merger with Wellcome for newly opened stores from suppliers who had been supplying for Wellcome has sufficient impact on transactions order and is thus in violation of Article 25 of the Fair Trade Act.
For further information, please contact:
Aaron Chen, Partner, Lee Tsai & Partners
lawtec@leetsai.com
