The Competition Authority’s Preliminary Sector Study Report on Fast Moving Consumer Goods Retail Sector

Within the scope of the Report the factors below are discussed based on the behavioral changes of consumer and, segregation of operational structures of the market players.

• Market structure determination,
• The activities of the undertakings,
• The past Competition Board decisions regarding FMCG retailing sector, and
• The opinions and applications of other competition authorities in different countries.

Determination and Assessments of the Authority on the FMCG Retail Sector

• Concentration rates in FMCG retail market are increasing rapidly and when the course of the market shares is observed, it has been determined that the market shares of the first four companies had increased, while the shares of local and small markets had decreased. Accordingly, it has been determined that the majority shares of the market in Turkey is amongst BİM, A101, Migros and Şok. Additionally, it is also determined that the small undertakings constantly lose market share and other small undertakings were pushed out of the market.
• Three of the first four undertakings in FMCG retailing sector are discount markets, and the number of private label products in the product portfolios of discount markets - mostly produced by small and medium sized producers or farmers - is higher than other markets.
• By the effect of their dominance at the retail market, discount markets have a significant buyer power against the sellers, however, abuse of this power may undermine the activities of sellers and weaken the competitive powers of the undertakings.
• Considering that farmers and small and medium-sized enterprises are the cornerstones of the country's economy, it is essential to avoid such practices that may lead to a decrease in the income of these actors and to weaken their incentives to invest, open new markets and develop new products.
• Ensuring that the undertakings do not abuse their purchasing power will have positive effects on competition and will have an important role by leading to decrease of the costs and gaining the expected benefits from competition in the FMCG retail market.
• As a result of the evaluations reached within the scope of the sector analysis, it has been determined that although there are some provisions prohibiting unfair commercial practices in the Turkish Commercial Code, Turkish Code of Obligations and the 6585 numbered Law on the Regulation of Retail Trade, suppliers do not choose the way of complaint and therefore the related provisions are not executed.
• In this respect, in order to avoid the abuse of purchase power of retailers, who have reached a significant level that can negatively affect the activities of both supply and retail actors and the level of competition by showing a rapid increase in the last decade. Also; it was concluded that there was a need for a legal regulation and an independent administrative authority which is responsible from the application of this legal regulation and with powers to enforce sanctions and investigate.
• In the mergers and acquisitions applications filed to the Authority, a stricter examination of this sector may come to the agenda and may narrow geographical market definitions such as a district or a neighborhood.
• In possible investigations regarding the sector, the presumption of concerted action in the text of the article can be used more effectively in accordance with Article 4 of the Competition Law. Notification thresholds of mergers and acquisitions can be redefined on a sector specific basis.
• Importance of store formats has decreased with digitalization. It has been determined that retailers on digital platforms are also rapidly involved in the competition of retailers selling stores. Within the scope of the Group Exemption Communiqué on Vertical Agreements No. 2002/2, a relatively low threshold for buyer power or only a threshold specific to this sector may be determined. Exclusivity agreements made in the sector that cause other competitors to be competitively disadvantaged may be re-evaluated, for example, agreements that ensure the production of certain types of products and packaging for only one undertaking may be prohibited.
• Since it is known that the markets gain some advantages arising from being both a manufacturer and a seller by manufacturing private label products and that they can access some sensitive commercial information in this way, it will ensure that the private label and manufacturer label purchasing units of the markets are completely separated from each other and establishment and execution of the strict application known as the "Great Wall" in the literature can be brought to the agenda.
• In order to enable other small or local retailers to compete more effectively with large chain markets; purchasing unions that will enable small / local retailers to purchase products at more affordable prices will be encouraged and exemptions can be granted to the agreements and decisions constituting this union within the scope of Article 5 of the Competition Law.
• Similarly, local retailers may be encouraged to manufacture private label products through various associations, and these agreements between local retailers and associations may be exempted within the scope of Article 5 of the Competition Law.

Conclusion
The Authority examined in detail the effects of the developments and changes in the retail sector on undertakings and consumers in the sector and concluded that new regulations should be introduced, and investigations should be made in more detail in order to avoid and control the reverse effects that may stem from these changes on competition in the market. The aforementioned determinations of the Authority are interpreted as that new regulations will be introduced in the FMCG retailing sector in the near future, and the undertakings of the retail sector should carefully follow the relevant regulations and updates within the scope of their commercial activities.

The Report has the qualification of pre-report. Therefore, it is expected that different updates will be published regarding the Report and relevant regulation arrangements will be put into practice in this context.

You can click here for Turkish version of the Report.

MORAL & PARTNERS
Nur Duygu Bozkurt Kadirhan, Senior Associate
Burak Batı, Associate
Işılay Işık, Trainee Lawyer