Hungary: Competition Authority Fines Retailer Auchan an Unprecedented 1 billion forints for Breach of Hungarian Trade Rules

01 April 2015 | newsletters

On 23 March 2015, the Hungarian Competition Authority ("Competition Authority") imposed a fine of over 1 billion Hungarian forints (HUF 1,061,300,000, corresponding to more than EUR 3.5 million) on the retailer Auchan on the basis of the Hungarian Trade Act for abusing its significant market power. This marks the highest fine ever imposed in the sector by the Competition Authority in Hungary.

The Competition Authority found that Auchan unilaterally imposed a fee on its non-food suppliers without a service in return, simply to ensure that the supplier's products were included or remained in Auchan's stock.

The charge came in the form of a so-called "after sale price discount", previously labeled as "end-of-year bonus" or "fix bonus" which was included in Auchan's annual contracts with about three-quarters of its non-food suppliers. According to the respective clauses, the suppliers had to grant a "discount" or "rebate" to Auchan based on a percentage which remained constant regardless of the actual turnover which Auchan realized with the product.

The Competition Authority concluded that the discount, regardless of its name, amounted to a unilaterally imposed listing fee.

The Hungarian Trade Act prohibits unilaterally imposing a listing fee on suppliers

Under the Hungarian Trade Act it is an abuse if large retail chains unilaterally impose fees on suppliers. This includes especially fees for being admitted to the trader's list of suppliers or products, or fees for services otherwise not requested by the suppliers. Moreover, the retailer is forbidden from requesting a most-favoured treatment status, or an obligation on the part of the supplier to provide a discount for the product only to the retailer during a given time frame; also, selling below purchase price is prohibited under certain conditions.

The rules apply to all traders (including retailers) with a significant market power. This captures companies with a consolidated net turnover of over HUF 100 billion (ca. EUR 330 million) and in some circumstances even companies with a lower turnover.

The Trade Act applies only to non-food products, whereas a separate, but similar set of rules apply to relationship with suppliers of food products. The latter are enforced by the National Food Chain Safety Office.

Why such a high fine?

The significant amount of the fine was partly due to the length of the established infringement, which took place over a time period of more than 8 years (from 2006 until the end of 2014). Moreover, in proceedings assessing the abuse of significant market power, the Competition Authority applies the procedural rules of the Hungarian Competition Act, which means the amount of maximum amount of fine which may be imposed is the same as, for example, that in a cartel proceeding (10% of the undertaking's (group) turnover in the previous financial year). In fact, the Competition Authority used the fining guidelines issued for cartel and abuse of dominance cases to calculate the fine in the Auchan case.

The Competition Authority considered it as an aggravating factor that Auchan continued its practice even after Spar was fined in 2012 for similar conduct towards suppliers. In that case, which was also based on the Trade Act, the Competition Authority imposed a HUF 50 million (ca. EUR 166,000) fine on Spar.

Auchan can contest the decision of the Competition Authority within 30 days. It has already issued a statement that it would do so. Spar's attempts to contest the 2012 decision did not succeed (its request for review failed at the first and second instance courts).

Trend setting?

Before the Spar decision in 2012, most proceedings on the basis of abuse of significant market power were typically terminated without establishing an infringement. Only in few cases were fines actually imposed, albeit the amount was significantly lower. The Auchan decision, including the amount of the imposed fine, signals that the Competition Authority is likely to be harsh on retail chains for similar practices in the future, therefore retail chains (including non-food retail chains) should revisit their year-long practices of contractual clauses with suppliers to make sure that these are in compliance with both competition law, and the specific Hungarian trade law.

Further restrictions on large retail chains

The obligation of retailers to close on Sundays took effect just one day before the Competition Authority's decision in the Auchan case.

Large retail chains will soon face further tough rules in Hungary. From 2016, retail chains will be deemed to be dominant on the retail market for daily consumer goods if their turnover – including that of their affiliates – is over HUF 100 billion (ca. EUR 330 million). This means that such companies will not only face the already existing strict Hungarian trade rules with regards to their conduct with suppliers, but will also be deemed as a dominant undertaking in the meaning of the Hungarian Competition Act. The latter entails their being held responsible by the Competition Authority for conduct that constitutes an abuse of dominant position (e.g. discrimination, tying, exclusivity, predatory pricing etc).

A further amendment to the Hungarian Trade Act prohibits retail chains from loss-making operations. A retail chain whose turnover is over HUF 15 billion (ca. EUR 50 million) in each of two consecutive years and which generates more than half of its turnover from the retail sale of daily consumer goods will be banned from selling daily consumer goods if it reports a loss or zero profit in both financial years.

The above steps form part of a trend in several European countries aimed at restricting the activities of large retails chains which are perceived as unfair and exploitative, respectively. The rules also purport to protect domestic small and medium-sized enterprises, as well as consumers. Hungary is at the forefront of this trend and has come under criticism by multinational retail chains for overly harsh restrictions of their business.

It remains to be seen whether Hungary can maintain its strict stance on large retail chains. By the same token, retailers are well advised for the time being not take competition or trade rules lightly, as the Hungarian Competition Authority seems determined to enforce them rigidly.