When your coffee becomes too cheap – Düsseldorf Court rules on pricing for supermarket’s own products

Supermarket chains pursue vertical integration of food producers expanding their private label portfolios. This increases the complexity of the relationship between retailers and suppliers from a competition law perspective. In this context, the Regional Court of Düsseldorf has now rendered a decision addressing what could become a future area of dispute between these players (decision of 16 January 2025, 14d O 14/24).

Facts

The claimant is a coffee producer supplying coffee to food retailers. The defendant is a food retailer and a customer of the claimant. In addition to the retail business, the defendant’s group of companies also includes a coffee producer. This coffee is also sold at the defendant’s retail outlets. Hence, the defendant is not only the claimant’s customer, but at the same time its competitor.

During regular promotional weeks, the defendant offered its own coffee at prices below production costs. The claimant, in its hybrid position as supplier and competitor, sued the retailer requesting the sales to cease claiming that the prices below-production costs constituted an abuse of market power (§ 20 (3) Act against Restraints of Competition (“GWB”)). § 20 GWB does not require the defendant to hold a dominant position but addresses situations in which one company is (bilaterally) dependent on another strong market player. Then, the strong party must not abuse this dependency by anti-competitive means.

Decision

The court denied the claimant’s request.

1. Firstly, the court denied the application of a special provision prohibiting food sales at prices below purchasing prices (§ 20 (3) S. 2 Nr. 1 GWB). Purchasing prices in the meaning of this provision only exist for products sourced from third parties. Vertically integrated production companies within the same group of companies are not such third parties in this context. According to the court, in that situation purchase prices cannot be objectively determined. Hence, the special provision does not address supplies from a producer within the same group of companies.



2. Secondly, the court discussed whether sales at prices below-production costs could constitute an abuse of a strong market position under the general clause (§ 20 (3) S. 1 GWB). According to prior case-law, the general clause requires, however, that the food retailer, assuming its strong market position, either hindered other market players to such a degree that the pricing created a risk of a lasting impairment of the structural conditions for effective competition or acted with the intent of eliminating competition.
   
   These provisions on sales at below-cost prices allow however retailers to apply a mixed cost calculation. It is at the retailer’s discretion to allocate eligible costs to specific products. Using loss-leaders in a broad product portfolio to increase profits on the consumer’s entire shopping bag can be a reasonable and competitively acceptable strategy. Moreover, the court held that even a systematic use of loss-leader offers would not automatically imply a lasting impairment of the structural conditions for effective competition. The court found that the low prices are limited to certain promotional offers of the defendant. Competitors could adapt to these offers and consumers are not to be expected to satisfy their entire demand for coffee just during these promotional offers. The court emphasises there is no protection of specific market players including smaller, potentially not so efficient retailers. If such less efficient retailers could not meet the competitive offers of the defendant, this will not render these offers anti-competitive or illegal.
   
   Moreover, the court did not find the required retailer’s intent either. In its view the low-cost sales form part of a commercially reasonable pricing strategy promoting overall sales. The aim was not to drive smaller competitors out of the market by riding out losses which smaller competitors could not sustain. Instead, the low prices should attract consumers to work through their complete shopping list at this one stop.



3. Finally, the court objects the claimant’s alternative argument that the stricter rules for sales of food below purchasing prices (see above at 1, which do not apply directly here due to a lack of “purchasing”) should also be considered for cases of sales below production prices within the framework of the general clause. However, in the court’s view the legislator has established special rules for the resale of food production (ie the prohibition of sales below purchasing costs requiring purchases from third parties) but kept the looser pricing rules for goods in relation to their production costs. It was not for the court to modify this legal methodology. If stricter rules should also be applied to goods produced by the seller (including vertically integrated companies) this would require the proper legislative decision-making process.

Practical implications

Many food retailers pursue a strategy of vertical integration. This creates potential conflicts with independent producers of (branded) products who are also supplying the retailers in competition with the latter’s own products. In this decision, the Regional Court of Düsseldorf favours price competition to the benefit of the consumers over protection of the potentially dependent producers. Generally, allegedly too low prices remain a difficult target for competition law.