CLARE’S LEGAL LAIR
CLARE’S LEGAL LAIR FMCG News would like to welcome its new resident lawyer, Clare Thomas. She will be giving legal advice every issue on the latest legislation in the FMCG industry to keep you up to date
Hello readers! As our industry is fast-moving by nature, it is key that those within the FMCG world are well aware of the legal pitfalls and issues that may cause problems at any point, be it now, or in the future. This is why I have teamed up with FMCG News to offer the latest legal advice. I look forward to working with the magazine for the next few issues, and if you have any questions, feel free to send them to the editor Rebecca, and she will forward them on to me.
else to go. What now? It was this kind of pressure that
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prompted retailers to complain to the OFT after price hikes of up to 30 per cent took place following ready meals supplier Kerry Foods’ acquisition of its rival, Headland. The example raises the
interesting question of what avenues are open to a company in the face of price rises when the commercial options alone don't help. The basic starting point will be
the contract – does the deal you have in place with the supplier allow for a unilateral price change? If not, what action can you take to enforce the contractual price? In addition to the contractual terms, consider also whether the supplier's actions go beyond fair commercial negotiations. This could lead to a claim of economic duress or intimidation on top of any contractual claims. Even if the commercial
arrangements allow the price increase, what if the price rise is unreasonable and out of all proportion to the costs faced by
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o, to kick off, a key supplier hikes up prices beyond reason. You've nowhere
your supplier and other prices (to the extent they are available) in the market? That could be a sign of market power and raise a few more questions. In the Kerry/Headland
scenario, the question was whether the price rise really demonstrated significantly increased power for Kerry and if so, whether the merger should be allowed. But the issue is not limited to mergers. If the supplier is important
enough and most buyers have no other option but to carry on buying from them, then maybe they are dominant. Dominant companies have specific responsibilities which are in place to ensure that they do not abuse their position. In particular, they cannot charge excessive prices, they cannot unjustifiably treat similar types of customers differently and they cannot punish "disloyalty" by their customers through the removal of discounts. An abuse of a dominant position is a serious matter, potentially attracting extremely high fines
Supplier price hikes can be a struggle and can weaken the supplier- manufacturer relationship, but things can be sorted to solve issues
and damages for those harmed by bad behaviour. Of course, what action you take
will be as much a commercial decision as a legal one. There's no point threatening to terminate or claim damages if you're unable to obtain alternative supplies.
way to avoid misunderstandings and to maintain good commercial relationships, even in these difficult times. For Kerry, the recent
provisional conclusions of the Competition Commission are that it has failed to make the price
“Even if the commercial arrangements allow the price increase, what if the price rise is unreasonable and out of all proportion to the costs faced by your supplier and other prices in the market?”
However, whilst your negotiating position in the short term may be restricted owing to supply issues, in the long term the price hikes may give you leverage to obtain better terms in future dealings. To maintain your negotiating position, make sure you obtain advice from your legal advisers to ensure that your rights are protected. For suppliers putting through
increases, managing the process so your customers have enough warning and understand what you are doing and why is the best
rises stick as customers have creatively found alternative suppliers at pre-price rise prices. Its view is therefore that the market is still competitive after the Kerry/Headland deal. So the merger will most likely survive, but at the possible price of a
reduced customer base.
Clare Thomas is Partner at law firm Addleshaw Goddard LLP, where she heads up the firm’s food & drink team. For more information, visit
www.addleshawgoddard.com.
© Robin Jeffries 2011
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