Ice Cream and Water Ices (Hansard, 6 May 1982)

§ Dr. Vaughan

The Director General has now completed the discussions with the ice cream suppliers which my right hon. Friend the then Secretary of State for Trade invited him to undertake following the publication of the commission's report on 2 August 1979. As a result of these discussions the ice cream suppliers have given certain undertakings to my right hon. and noble Friend.

The commission found that two scale monopoly situations existed in favour respectively of Unilever Ltd., T. Wall & Sons (Ice Cream) Ltd., Walls-Whippy Ltd., Treat Investments Ltd. and Treat Holdings Ltd. and its subsidiaries listed in the report—referred to as Wall's—and J. Lyons & Co Ltd., Lyons Ice Cream Holdings Ltd., Glacier Foods Ltd. and its subsidiaries and Lyon Maid Ltd. and its subsidiaries listed in the report referred to hereafter as Lyons. In the MMC report these companies are referred to collectively as "Glacier". In addition, the commission found a complex monopoly situation to exist in favour of the same companies—with the exception of Treat Investments Ltd. and Treat Holdings Ltd. and its subsidiaries—and some other suppliers of ice cream and water ices which employed one or more of three practices identified by the commission as restricting competition.

The commission identified two of these practices as being adverse to the public interest: the requirement as a condition of supply to a retail outlet that the ice cream of other suppliers should not be sold from that outlet; and, the provision of a refrigerated cabinet on terms which prevented the customer from using it to stock ice cream of other suppliers when the supplier providing the cabinet could not meet the customer's requirements.

The commission recommended that the first of these practices should be ended and that, in relation to the second practice, the ice cream suppliers should in the contract of supply make express provision permitting the retailer to stock and sell ice cream of other suppliers when the supplier himself cannot meet the customer's requirements.

The Director General secured the following undertakings from the complex monopolists—except that Mor-Isis Products Ltd. and Fifti Ices were not subject to undertaking 1:

1. Not, except at the written request of the retailer, to supply ice cream and/or water ices to a retail outlet on terms which require, or would require, the retailer to take his supplies of those products for that outlet exclusively from them, whether such requirement is a condition of supply or of supply upon particular terms.
2.
1. (a) Not to supply on exclusive terms a refrigerated cabinet to any retail outlet unless the supply agreement includes a term permitting the retailer to stock the cabinet from an alternative source in the circumstances set out in sub-paragraph (b) below with the products, and in the quantities specified in sub-paragraph (c) below.
2. (b) The retailer shall be permitted to stock the cabinet from an alternative source where he has made a request to, or placed an order with, the supplier for the supply of his bona fide requirements for ice cream and/or water ices in the minimum quantities which the supplier from time to time holds itself out as being willing to supply to its customers generally and either the supplier has failed to supply all such requirements, where ordered in the course of a scheduled call, by the end of two working days following a scheduled delivery day or where ordered in the course of a request call by the end of three working days following the day of that call, or the supplier has indicated to the retailer that it will be unable so to supply them.
3. (c)In the circumstances specified in sub-paragraph (b) above, the retailer shall be permitted to stock the cabinet from an alternative source with such quantities of products of an equivalent general description to those products which the supplier either was unable to supply at the request of the retailer or fails to supply in response to an order placed by the retailer as are reasonably required to meet his needs until the next scheduled delivery day provided that once the supplier has tendered delivery to the retailer the supplier may require him to sell any remaining quantities of other manufacturers' products to the supplier at the price which he paid for them.

The commission also identified practices employed by the two scale monopolists, Wall's and Lyons, for the purpose of exploiting or maintaining their monopoly situations that operated against the public interest. These were the requirement as a condition of supply that the period of an agreement to supply reference goods should be in terms which ran or might run for longer than a year, and the payment of a retrospective bonus of which the period did not end at the same time as an annual contract to supply reference goods. This bonus could have had the effect of inducing retailers to stay with the same supplier in order to maximise the bonus to which they would be entitled.

The commission recommended that Wall's and Lyons should in all cases offer to supply their customers with reference goods under a written contract of which the duration was no longer than 12 months and also that Wall's and Lyons should either ensure that the period for granting a bonus ends at the same time as an annual contract to supply reference goods or should grant only one flat rate of bonus to a customer which he would be entitled to receive in respect of any reference goods supplied during the period of the contract.

During the course of discussions, however, it became clear that producing written contracts for every retail outlet would be a considerable administrative burden, and the Director General therefore proposed as an alternative that the companies should reduce to one month the period of notice necessary to terminate a contract. This means that a retailer may take decision to terminate a contract at the time of his dissatisfaction rather than waiting until the end of the annual contract period. The Director General considered that in view of the initial cost involved in setting up a contract, contracts should not be capable of termination during the first 12 months of their life.

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The Director General therefore secured the following undertakings from Lyons and Walls: (1) Not, except at the written request of the retailer, to enter into an agreement for the supply of ice cream and/or water ices to a retail outlet unless it is capable of termination after the first 12 months by the retailer by one month's notice in writing; (2) Not to operate any stepped or sliding scale bonus or discount scheme or arrangement which has, or may have, the effect of offering an incentive to a retailer not to exercise the rights of termination granted to him in pursuance of undertaking (1) above and not, in addition, to calculate such bonuses or discounts by reference to a period exceeding 12 months.

Finally, the commission concludeed that a number of requirements made by Lyons were steps taken for the purpose of maintaining and exploiting a monopoly situation; and that they operated against the public interest, since they had the effect of restricting competition in the supply of reference goods to retailers; of restricting the opportunities for new entrants to the trade; and of restricting consumer choice. These were: the requirement as a condition of supplying reference goods to certain wholesalers that they did not sell the reference goods of other suppliers: the requirement as a condition of supply of any of its soft ice cream mix that the customer took his supplies of hard ice cream also from Lyons: and the requirement in its franchise agreements with mobile van operators that the franchisee might not stock or sell any reference goods other than the brands specified, not be concerned in certain areas in any other mobile business in reference goods.

Concerning the first two of these practices the Director General has secured the following undertakings from Lyons: (1) Not to require, as a condition of supplying ice cream and water ices to any wholesaler, that the wholesaler takes all his requirements of ice cream and water ices from it; (2) Not to require, as a condition of supplying its soft ice cream products, that the purchaser takes his supplies of hard ice cream products from it.

Concerning the third of these practices the Director General considered that the commission's recommendation that such a requirement should cease could have effectively denied Lyons an exemption which would be available to other manufacturers and which was advocated by the commission in its recommendation on exclusivity. The Director General therefore proposed alternative wording for an undertaking which would effectively ban only the practice which the commission had found to be detrimental, namely, the practice of insisting that mobile outlet franchisees sell only Lyons' goods whether the franchisee was operating from the franchised outlet or not. The Director General therefore secured the following undertaking from Lyons: Not, in the case of mobile outlets franchised by the company, to require any franchisee as a condition of supplying those mobile outlets operated and controlled by the franchisee not to be concerned in any other mobile business supplying ice cream and water ices.

The undertakings, except those given by Lyons relating to wholesalers and mobile outlets, shall not apply to a franchised outlet—as defined in the following paragraph—provided, in the case of the first undertaking, that the supply of ice cream and water ices to such an outlet is not made conditional upon the franchisee also acquiring from the same source his supplies of ice cream and water ices for other outlets operated or controlled by him and not specifically franchised by the supplying company.

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"Franchised outlet" means an outlet having the characteristics set out in paragraph 404 of the Monopolies and Mergers Commission's report; namely, an outlet prominently and uniformly identified with the supplier, bearing his trade-marks, name or livery, which the retailer is authorised to use, while the supplier is entitled to exercise a degree of supervision over the retailers operations, which he may support, financially or in other ways, for example, by advice and training".

The 40 companies involved have agreed to provide the Director General with such information as he may reasonably require to keep under review the carrying out of the undertakings.

My right hon. and noble Friend considers that the undertakings given by the ice-cream suppliers are sufficient to remedy and prevent the adverse effects specified in the Commission's report.