Coca-Cola moves to settle EC anti-trust allegations
brought against the company by the European Commission.
The EC has been looking into the legality of Coca-Cola's rebates to retailers since 1999, when it carried out an unannounced inspection at the group's European headquarters. Charges have yet to be brought.
In particular, the EC has been examining rebates for retailers that carry a range of Coca-Cola products and at rewards for displaying drinks prominently. Coca-Cola claims that its rebates are normal practice, and argues that big retailers exercise more power over the sector. It denies it dominates the relevant market.
However, the soft drinks group has now offered to eliminate rebates that are rewarded only if retailers reach certain sales targets. In addition, the company has offered to stop giving rebates on the condition that merchants group its products together in so-called "red racks" which display ordinary Coke, special flavours of Coke such as vanilla and Coke's non-cola products.
According to Reuters, Coke has also offered to make space available in its branded coolers for so-called "guest drinks", although not for rival colas. These non-Coca-Cola products would be given 20 per cent of the cooler's capacity.
Rival PepsiCo, which has made many of the allegations, has consistently contended that it faces unfair barriers to competition in the market for cola drinks in Europe, where its market share is far smaller than in the United States. The company has complained that rivals have been shut out because shoppers are drawn to the Coke rack without bothering to look at rival offerings elsewhere in the store.
But the Commission recently rejected Pepsi's suggestion that Coke base its rebates on sales over three-month periods, shorter than Coke would like. Generally, the longer a rebate period the harder it is for rivals to enter a market.
It appears that a settlement is close. Coca-Cola giant would clearly like to avoid formal charges that it has abused a dominant position in the market. The recent Brussels ruling against Microsoft, the software group, has heightened interest in reaching an early settlement.
This would bring to an end one of several recent unpleasant episodes for the soft drinks group. The company has had to deal with a number of other recent difficulties, including the discovery of higher than permitted levels of the chemical bromate in samples of its bottled water brand, Dasani in the UK.
A voluntary withdrawal was undertaken as a precautionary measure. The UK's Food Standards Agency said that although there was no immediate risk to public health, Coca-Cola's decision to stop selling Dasani in Britain was sensible.
And in the US, federal investigators have been investigating Coca-Cola's dealings with Japanese company Takasago International in connection with allegations of channel stuffing. It is alleged that the beverage giant overstated financial results for several years by shipping excessive beverage concentrates to Japan.
Channel-stuffing refers to the practice of convincing clients to accept unwanted or early deliveries of a product. The method is used to pad revenue, and can help a firm meet quarterly financial targets. Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity. According to a Wall Street Journal report, the Securities and Exchange Commission and the US Attorney's Office are now investigating whether Coca-Cola is guilty of 'channel stuffing' in order to artificially boost profit forecast and sales. The report says that investigators have focused on Douglas Daft, Coca-Cola's chairman and chief executive who announced his plans to retire on 19 February.
