By Lea Pachta

The Office of Fair Trading (OFT) has found that two tobacco manufacturers and ten retailers engaged in unlawful practices in relation to retail prices for tobacco products in the UK, and has imposed fines totalling £225m.

The tobacco manufacturers involved are Imperial Tobacco and Gallaher, and the retailers are Asda, The Co-operative Group, First Quench, Morrisons, One Stop Stores (formerly T&S Stores), Safeway, Sainsbury’s, Shell, Somerfield and TM Retail.

The OFT has concluded that each manufacturer had a series of individual arrangements with each retailer whereby the retail price of a tobacco brand was linked to that of a competing manufacturer’s brand. These arrangements restricted the ability of these retailers to determine their selling prices independently and breached the Competition Act 1998.

The infringements span different periods between 2001 and 2003 for different parties, and related variously to the markets for UK duty paid cigarettes, hand rolling tobacco, pipe tobacco, and cigars and cigarillos. The current value of these markets is estimated at around £13 billion.

Asda, One Stop Stores, Sainsbury’s and Somerfield have benefitted from discounts in their fines under the OFT’s leniency programme, which provides co-operating parties with a discount in fines where they proactively volunteer information which assists the OFT’s investigation. Sainsbury’s had alerted the OFT to the infringements and as the first to apply to the OFT for leniency, it receives complete immunity from fines.

In addition, Gallaher, Asda, First Quench, One Stop Stores, Somerfield and TM Retail received reductions in their fines because, following receipt of the OFT’s Statement of Objections issued in April 2008, they each admitted liability in respect of the infringements alleged against them and agreed to a streamlined procedure enabling parts of the case to be resolved more quickly so reducing the costs of the investigation.

Having considered representations made by the parties, the OFT has decided not to pursue allegations made in respect of the relationship between each of Imperial Tobacco and Gallaher with Tesco in its Statement of Objections as it considers it has insufficient evidence to proceed to an infringement finding. For the same reason, the OFT has also decided not to pursue additional allegations relating to the indirect exchange of proposed future retail prices against Imperial Tobacco, Gallaher, Asda, Sainsbury’s, Shell, Somerfield and Tesco.

Simon Williams, OFT Senior Director of Goods, said:

‘Practices such as these, which restrict the ability of retailers to set their resale prices for competing brands independently, are unlawful. They can lead to reduced competition and ultimately disadvantage consumers.

‘This enforcement action will send out a strong message that such practices, which could in principle be applied to the sale of many different products, can result in substantial penalties for those who engage in them.’

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