Leading tobacco and retail groups were on Friday preparing to hit back over a record price-fixing fine imposed by the competition watchdog in its growing crackdown on allegedly illegal dealings between manufacturers and suppliers.
Imperial and Wm Morrison said they would appeal over their parts of a £225m penalty imposed by the Office of Fair Trading on a group of 11 companies after a seven-year investigation.The response to the fines – the biggest ever in an OFT case – highlights the growing battle between leading companies and the watchdog, which issued a thinly veiled warning of future sanctions against other businesses in similar cases.
Simon Williams, OFT senior director of goods, said: “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.”
The OFT handed down fines of £112m to Imperial and £50m to Gallaher, with the remainder of the total imposed on Asda, The Co-operative Group, First Quench, Morrison, One Stop Stores, Safeway, Shell, Somerfield and TM Retail. The OFT scrapped its case against Tesco for lack of evidence.
The watchdog says all the companies except Tesco were involved in arrangements between 2001 and 2003 through which, when the price of one of the tobacco manufacturer’s products changed, the price of a rival brand would also be adjusted.
This allegedly breached 1998 Competition Act prohibitions on deals that curb retailers’ ability to set prices independently.
Imperial said it was contesting the case because its arrangements were linked to price promotions that benefited consumers. Morrison said it would challenge the OFT’s ruling for its own chain of stores and for Safeway, which it acquired in 2004, on the basis that the watchdog’s stance was “illogical and without foundation”. The Co-op said it was “actively considering” an appeal.
Gallaher said it took competition law compliance seriously and had completed a review of its compliance training. Asda said it was “very sorry”, while Tesco said it was delighted to see the OFT confirm it did not collude with suppliers or competitors.
The alleged wrongdoing is from an era when Gallaher and Imperial, which between them account for more than 85 per cent of total British tobacco sales, began to cut prices to deal with a fall in cigarette consumption and a rise in black market turnover.
One tobacco industry analyst said: “At that point in time, Imperial was not yet the market leader and it was trying to gain share at the expense of Gallaher. And one of the way it tried to do that was by selling cheaper cigarettes.”
By Michael Peel, Pan Kwan Yuk and Elizabeth Rigby