Chung Hsiang Foods Industry Co., Ltd

Case:

Key Words:

agreement on resale prices, distribution system, retail price agreement, intra-brand competition

Reference:

Fair Trade Commission Decision of June 13, 2012 (at the 1075th Commissioners' Meeting), Disposition Kung Ch'u Tzu 101068

Industry:

Bakery Products Manufacturing (0891)

Relevant Laws:

Article 18 of the Fair Trade Law

Summary:

1. Chung Hsiang Foods Ind. Co., Ltd. (hereinafter referred to as Chung Hsiang Foods) produces the "Natural Series" soda crackers and supplies them to various hypermarkets and retailers throughout the country. On May 21 of this year (2012), the company sent to certain branches of RT-Mart a price agreement via fax and requested them to sell Chung Hsiang Foods' soda crackers according to the retail prices suggested by Chung Hsiang Foods. The agreement also stated that "if the prices are found incompliant with the suggested rates, Chung Hsiang Foods may suspend the supply of its "Natural Series" soda crackers for three months until the prices are adjusted and compliant with the suggested rates." The conduct violated Article 18 of the Fair Trade Law.
2. Findings of the FTC after investigation:
   1. The principal sales outlets for Chung Hsiang Foods' "Natural Series" crackers were the four major convenience store chains, the hypermarkets, PX-Mart, and the supply stations of the Military Welfare Department. Among them, the four major convenience store chains and the hypermarkets paid for the supplies with checks upon their deliveries. Hence, the profit that these businesses made was the difference between their purchasing price and selling price. In other words, they were distributors of the products, not agents who earned commissions from their sales. When the Neihu, Jhonghe, Tucheng, and Bitan branches of RT-Mart had a promotional sale on the "Natural Series" soda crackers between April and May of this year, the prices were far lower than those at other retail outlets. This caused a loss of business for other retailers who then, in turn, demanded Chung Hsiang Foods to reimburse them for the price differences. Chung Hisang Foods therefore faxed the aforesaid price agreement on May 21 of the same year to request RT-Mart to stick to the rates suggested in the agreement to stabilize the retail prices.
   2. Chung Hsiang Foods stopped supplying the Neihu, Jhonghe, Tucheng, and Bitan branches of RT-Mart with its "Natural Series" soda crackers on the day it sent the said agreement. RT-Mart contacted Chung Hsiang Foods immediately after receiving the said agreement and the said branches also adjusted the prices of the "Natural Series" crackers to the rates suggested in the price agreement within 2 or 3 days. After confirming on the development, Chung Hsiang Foods resumed its supply to the said branches.
3. Grounds for disposition:
   1. When the Neihu, Jhonghe, Tucheng, and Bitan branches of RT-Mart had a promotional sale on the "Natural Series" soda crackers between April and May of this year, the prices they set were far lower than those at other retail outlets. Chung Hsiang Foods admitted to sending the price agreement on May 21, 2012 to RT-Mart's main office out of the intention to prevent RT-Mart from messing up retail prices and demanded RT-Mart to set its retail prices for the "Natural Series" soda crackers according to the prices listed in the said agreement; otherwise, Chung Hisang Foods would suspend the supply of its "Natural Series" soda crackers. On the day it faxed the said agreement, Chung Hsiang Foods did suspend the supply to RT-Mart's branches that were having the aforementioned promotional sale.
   2. Chung Hsiang Foods admitted that the hypermarkets paid by check when their products were delivered. Therefore, the profit they made was the difference between their purchasing and selling prices. They were distributors that owned the products they had paid for. After supplying the soda crackers to RT-Mart, Chung Hsiang Foods had to allow RT-Mart to decide its own prices. By restricting the freedom of its downstream distributors to decide the retail prices of the soda crackers, Chung Hsiang Foods reduced the intra-brand price competition between distributors and such conduct was in violation of Article 18 of the Fair Trade Law.

Summarized by Wu, Hsin-Te；Supervised by Yang, Chia-Hui

Appendix:
Chung Hsiang Foods Industry Co., Ltd's Uniform Invoice Number: 04850123