Territorial Supply Constraints – Are consumers getting a good deal?

In November 2020, the European Commission published its ‘Study on territorial supply constraints in the EU retail sector’. Territorial supply constraints (‘TSCs’) are restrictions imposed by large manufacturers which prevent retailers and wholesalers from sourcing where they wish in the Single Market. They limit retailers’ possibilities to make products available at affordable prices for consumers across the EU. The Commission study found that TSCs cost EU consumers more than €14 billion a year. Addressing this now is even more critical for consumers as household budgets face squeezes as inflation and the energy crisis takes its toll.

TSCs can take the form of practices, such as:

• refusal to supply;
• threatening to stop supplying a particular product;
• limiting the quantities available for sale;
• unexplained differentiation of product ranges and prices between Member States;
• limiting language options for the product packaging.

Certain of these practices enable a manufacturer to verify the destination of goods supplied (e.g. differentiated labels). The European Commission recently included such practices as examples in the guidelines on vertical restrictions as indicative of behaviour, where used by suppliers to control the destination of goods, as possible restrictions of competition.

At the EuroCommerce event in March 2022, speakers from the industry, the EU institutions and Benelux discussed clear examples of TSCs and possible next steps to eliminate them.

MEP Marc Angel (S&D Luxembourg) said that TSCs had negative consequences for everyone – consumers paid more, the range of products available for them was reduced and businesses were less competitive. He also stressed that the single market is much more than an economic project – it was key for the green and digital transition and for the recovery of Europe out of COVID-19. He counted on the Commission to produce a clear proposal to eliminate TSCs.

Monique Goyens, Director General of the consumer organisation BEUC, saw competition as key in a well-functioning single market delivering consumer welfare, including affordable prices, innovation and choice. Any attempt to fragment the single market hurt consumers, making actions against TSCs even more crucial in this period of inflation.

Jan Molema (Benelux Union) pointed to a study undertaken by them on the effects of territorial supply constraints in the Benelux. He also emphasised that it was important to use simple language: the issue was about product availability and affordable prices for consumers, and this was being hampered. Highlighting the fact that in January 2023 we are celebrating the 30th anniversary of the EU Single Market, he also said that we still have work to do.

Hendrik Jan van Oostrum (Ahold Delhaize) recalled that TSCs had been identified by the Commission for some time but the 2020 Study from DG GROW should give this subject a fresh impetus. Retail alliances could help mitigate the negative effects of Territorial Supply Constraints and bring benefits which were substantially passed on to consumers.

Sabine Schnabel (Spar Austria) provided concrete examples of how TSCs were imposed by large manufacturers, who refused to allow Austrian retailers to order from other member state distributors (for instance in Germany), referring them back to their Austrian distribution subsidiary. This was not only a matter of charging higher prices, but also of availability of the full product range.

Philippe Chauve, Head of Unit, European Commission DG Competition, stressed that competition law could only be used either against unlawful agreements containing TSCs under Article 101 or against unilateral actions under by brands Article 102, but only if they were dominant on the market (e.g. the AB InBev and Mondelez investigations). The Commission would continue its enforcement against TSCs within the limits of what competition rules allowed and called on the retail and wholesale sector to provide more examples of TSCs for the Commission to examine.

Giacomo Mattino, Head of Unit at DG GROW in the European Commission, agreed that TSCs were an issue and had an impact on consumer prices and accepted that they were by no means only a problem for smaller countries, but an issue across Europe. The Commission was still reflecting on what the next steps should be, but they were considering whether guidance to businesses could be helpful.

EuroCommerce will be pursuing this issue in the coming months and is hopeful that the Commission will act to help alleviate the impact of these practices on consumers by providing greater clarity on what is allowed and what not. When large multinational manufacturers use the Single Market to optimise their operations, it is not justifiable that they fragment the market to restrict access to their full range and maintain massively diverging wholesale prices for the same products while they refuse retailers and wholesalers – and most importantly their customers – the same benefits.’