Chain Convenience Stores

Case:

Key Words:

chain convenience stores, coffee

Reference:

Fair Trade Commission Decision of November 2, 2011 (the 1043rd Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 100220

Industry:

General Merchandise Retail (471)

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

1. The Fair Trade Commission (FTC) learned on October 4, 2011 that chain convenience stores intended to raise the price of freshly brewed coffee due to an increase in the price of fresh milk. Upon making contact with convenience store operators, the FTC learned that the President Chain Store Corporation (operators of 7-ELEVEN chains, hereinafter referred to as President Convenience Stores), Taiwan FamilyMart Co., Ltd. (hereinafter referred to as FamilyMart), HiLife Co., Ltd. (hereinafter referred to as HiLife), and OK Mart Co., Ltd. (hereinafter referred to as OK Mart), raised prices by similar sums within a close time proximity, raising suspicion of violating the provisions of Article 7 and Article 14 of the Fair Trade Law prohibiting concerted action. Pursuant to its duties and authorities, the FTC initiated an ex officio investigation in accordance with legal procedures on October 5.
2. Investigation process and findings: The FTC requested the four chain convenience stores in writing to provide written information, comply with interviews, and appear at the FTC to provide their views and related evidence in writing. Further, 10 domestic chain coffee operators were asked in writing to provide data on freshly brewed coffee sales, resulting in the following findings: FamilyMart (October 4), President Convenience Stores and HiLife (October 5), and OK Mart (October 6) all raised the retail price of freshly brewed coffee during the first week of October; each of the four raised the price of a cup of freshly brewed coffee containing milk, no matter the size, by NT$5.
3. Grounds for Disposition:
   (1) Grasping consumers' pursuit of convenience, chain convenience stores constantly offer new and more diversified products in "convenient goods," "urgent necessities," and other ancillary services such as fax transmission, photocopying, utility payments, courier and package delivery, on-line shopping pick-up, and ATMs. As of 2009 the number of convenience stores throughout Taiwan surpassed 9,000 outlets, for an average of one store every 0.26 square kilometers, serving over 2.5 billion customers per annum and rising by the year, demonstrating the density, accessibility, and 24-hour operation had engendered a high degree of reliance among everyday consumers; chain convenience store freshly brewed coffee is prepared by clerks manning coffee machines selling self-brand coffee with fresh milk, coffee, and consumable materials distributed via logistics services, distinct from the simple reselling of food, beverages, or regular everyday items by chain convenience stores. If the marketing strategy of freshly brewed coffee incorporating pricing, display, and promotion were not autonomously decided by chain convenience stores, rather controlled via concerted action, then the chain convenience store freshly brewed coffee market should be subject to the regulations of the Fair Trade Act concerning concerted action.
   (2) Regarding the FTC's determinations on unlawful concerted action, in addition to such direct proof as contracts or agreements, other indirect evidence conforming with experiential and theoretical hypotheses can form the basis for determining unlawful conduct. Following investigation the FTC found that the chain convenience store freshly brewed coffee market is highly concentrated, and that although the four enterprises asserted that the rise in prices for freshly brewed coffee reflected the cost of fresh milk, the price for all 48 coffee beverages containing milk – whether a small hot latte containing a larger amount of milk, a large iced latte containing less milk, or other freshly brewed coffee products such as cappuccino, mocha, caramel macchiato, regardless of size or formula – was raised across the board by NT$5 per serving. Moreover, in order to respond to price rises for freshly brewed coffee the working hours necessary for subsequent promotional activities varied among the four chain convenience stores, yet they acted in an urgent, rushed, and synchronized manner.
   (3) The FTC undertook a careful review of related evidence, observing the four chain convenience stores' sales volume, the number of outlets nationwide, and found that adjustments to the price of related goods by the four firms would surely trigger vertical and horizontal communication across various departments. However, none of the four was able to explain in detail the economic rationale for the NT$5 price increase for coffee beverages containing milk. Each of the four chain convenience stores had different operating costs and management efficiency, yet manifested exactly the same degree of price increase, timing, and products. Thus, it can be deduced that this uniform price adjustment was the result of agreement among different enterprises.
   (4) The FTC found that the joint increase of the price of freshly brewed coffee among President Chain Store, FamilyMart, HiLife, and OK Mart excluded mutual competition and together pursued unfair joint profit, harming the competitive functions of the related market sufficient to impact the supply and demand market functions of chain convenience store freshly brewed coffee, in violation of the terms of Article 14(1) of the Fair Trade Law concerning concerted action. Accordingly, President Chain Store was ordered to pay a fine of NT$16 million, FamilyMart NT$2.5 million, HiLife NT$1 million, and OK Mart NT$500,000.

Appendix:
President Chain Store Corporation's Uniform Invoice Number: 22555003
Taiwan FamilyMart Co., Ltd.'s Uniform Invoice Number: 23060248
HiLife Co., Ltd.'s Uniform Invoice Number: 23285582
OK Mart Co., Ltd.'s Uniform Invoice Number: 22853565

Summarized by Chen, Ying-Ju; Supervised by Hung, Hsiu-Hsing