The European Commission has accepted legally binding commitments from Coca-Cola which should increase consumer choice in pubs and clubs by, for example, preventing Coca-Cola from entering into exclusive agreements with shops and pubs, offering them target or growth rebates or forcing them to take less popular products along with more popular brands.
In October 2004 Coca-Cola offered commitments to the Commission to address competition concerns following a five year investigation into Coca-Cola's commercial practices. The investigation was launched due to a complaint made by Pepsi. Pepsi was of the opinion that its products were being forced off shelves and out of coolers as a result of Coca-Cola's practices, which included offering rebates and bonuses to retailers. Coca-Cola was criticised by the Commission because it offered its products to retailers in such a way that they were encouraged, or in some cases forced, to stock only its products and not those of rival drink makers. Coca-Cola (and its bottlers) offered commitments in order to put an end to the investigation and to prevent the possibility of fines arising.
Following consultations on the commitments offered by Coca-Cola, the Commission decided to allow the commitments to become legally binding in order to improve competition in the markets for carbonated soft drinks in Europe. This should allow consumers to choose from a larger range of fizzy drinks at competitive prices in shops, pubs, restaurants etc. The commitments will apply in those parts of the EU, Iceland and Norway where Coca-Cola has or attains a market share of more than 40 percent and more than twice the share of the nearest competitor i.e. where Coca-Cola is in a dominant position in its market. Each year a list of countries where the commitments apply will be published on the websites of Coca-Cola and the Commission.
The main commitments are as follows:
- Exclusivity agreements – Customers must be free to buy and sell carbonated soft drinks from any supplier.
- Target or Growth Rebates – Coca-Cola will no longer offer rebates to customers as a reward for purchasing the same or more of Coca-Cola's products than previously.
- Tying – Coca-Cola will not be permitted to use stronger brands to sell less popular brands.
- Range – Coca-Cola will no longer be able to offer rebates for customers stocking a range of Coca-Cola branded drinks or require customers to specify a percentage of stock space to the brand.
- Shelf space – Coca-Cola will not be able to reserve more than a defined percentage of shelf space (which is based on national market shares).
- Cooler use – Where Coca-Cola provides free coolers and no other cooler is available, it must allow the buyer to have at least a 20 percent space for brands other than Coca-Cola. If the cooler has been purchased, Coca-Cola can impose no restrictions.
- Sponsorship agreements – Coca-Cola will not be permitted to pay or offer incentives to ensure that other drinks brands will not be available at the venue.
These Commitments apply to all existing and new agreements, and must be implemented by 1 January 2006. They will remain in force for five years (until December 2010). If the commitments are not adhered to, the Commission may impose a fine of up to 10 percent of Coca-Cola's total worldwide turnover.
The decision will result in a wider consumer choice of carbonated soft drinks, and also indicates how the Commission may assess the pricing and behaviour of other dominant companies. The decision is particularly interesting because it demonstrates the considerable detail into which the Commission will go to try to promote competition in consumer markets.