B&W Enterprise Co., Ltd.

1248th Commissioners' Meeting (2015)

Case:

B&W Enterprise Co., Ltd. violated the Fair Trade Law for restricting retailers' pet food prices of Royal Canine

Keyword(s):

Pet food, feedback contract, suggested price

Reference:

Fair Trade Commission Decision of October 7, 2015 (the 1248th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 104101

Industry:

Wholesale of Other Specialized Wholesale Not Elsewhere Classified (4699)

Relevant Law(s):

Article 18 of the Fair Trade Law in effect at the time of the conduct

Summary:

1. The FTC was informed that large pet food and supply chain stores had opened up branches in Tainan City since 2013 but their businesses expanding were slow due to recessions. To increase profits, they held a meeting and decided to request upstream suppliers to impose control on retail prices and ask their retailers to raise prices. After the meeting, pet food supplier B&W Enterprise Co., Ltd. (hereinafter referred to as B&W) demanded its retailers, including the informer, to raise prices. The informer refused to cooperate and was therefore cut off supply by B&W.

2. Findings of the FTC after investigation:

   (1)

   B&W was the distributor for French-produced Royal Canine pet food in the region south of (including) Taichung. The company sold Royal Canine food products to retailers at rates indicated on its price list that included wholesale prices and suggested prices. B&W would give different discounts according to retailers' purchased amounts and payment terms. In addition, the suggested prices were provided for retailers' reference when selling the company's products. B&W signed the “______ Year VIP Customer Special Feedback Contract” with chain store operators and retailers making larger sales. Except for giving better discounts to such customers, B&W also used the contract to impose restrictions on their retail prices for Royal Canine pet food products.

   (2)

   Large chain store operators set up branches in Tainan City one after another in 2013 and lowered prices during their opening periods to promote sales. Pets Noble Co., Ltd. (hereinafter referred to as Pets Noble), and an existing local business, followed up and decreased the prices to attract customers. As a result, competition in the market became fiercely and disputes occurred frequently. In November 2013, B&W cut its supply to Pets Noble for selling Royal Canine at excessively low prices.

3. Ground for disposition:

   (1)

   B&W was the only distributor for Royal Canine pet food in southern Taichung. After purchasing Royal Canine pet food products from the company, retailers made payments on a regular basis. The differences between purchasing and selling prices were the profits, and they were allowed to return products only when they were defected, for example the packaging was damaged or worms in the pet food. All business risks were taking by the retailers. In other words, business between B&W and retailers was outright sale/purchase. However, in the “______ Year VIP Customer Special Feedback Contract”, it was stipulated that retailers “must sell products at suggested prices and not engage in malicious price competition; this contract will be invalidated if party B sells products at prices lower than average market prices and fails to comply after being notified to make corrections”. Some retailers also confirmed that B&W did impose strict retail price control on them and had always demanded retailers not to sell Royal Canine pet food products at prices lower than 85% of the suggested prices. Therefore, the aforesaid stipulation in the special feedback contract was a lowest resale price restriction.

   (2)

   Royal Canine was one of the two best-selling pet food brands in domestic market. Retailers needed the products on their shelves, otherwise they would not be able to promote the sales of other products and their businesses would be seriously affected. Yet, according to the stipulation that retailers “must sell products at suggested prices and not engage in malicious price competition; this contract will be invalidated if party B sells products at prices lower than average market prices and fails to comply after being notified to make corrections”, B&W could terminate the contract and stop giving cash feedback if a retailer failed to sell the company's products at suggested prices. This could undoubtedly make pressure on the retailers mentally. Also, the retailers' freedom to decide their own prices and was obviously restrained and the resale prices were thus essentially maintained. B&W did cut supply to Pets Noble in November 2013 after the latter continued to sell Royal Canine pet food products at low prices. Therefore, the conduct of B&W had made it impossible for the retailers to decide their selling prices in accordance with the market competition they faced and their cost structures. It would weaken intra-brand price competition among retailers and was in violation of Article 18 of the Fair Trade Law in effect at the time of the conduct. Hence, the FTC cited the first section of Article 41(1) of the Fair Trade Law in effect at the time of the conduct and imposed an administrative fine of NT$500,000 on B&W.