Jeronimo Martins’ discount retailer in Poland is under investigation by the country’s competition watchdog for “unfair” contract practises with fruit and vegetable suppliers.
Biedronka, Poland’s largest food-store chain, was the subject of a probe launched by the Office of Competition and Consumer Protection (UOKiK) in June, leading to a “charge of unfair use of contractual advantage against the company”, the watchdog said in a statement.
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The retailer could face a charge equivalent to as much as 3% of its annual turnover. Asset management firm Alliance Bernstein put Biedronka’s turnover at PLN51bn (US$12.7bn) last year, meaning it could face a maximum fine of up to EUR360m ($393.1m), which Bernstein said would amount to about 3.6% of the company’s market capitalisation.
UOKiK said in a statement Biedronka’s owners – Jeronimo Martins Polska (JMP), a division of its Portugal-based parent – receives two types of discount from its fruit and vegetable suppliers, one set out contractually and one not, with the latter leaving suppliers unsure of what discount they will be required to give Biedronka.
It is the second discount Poland’s competition body is most concerned about.
“The first of these discounts is set out in the contract as a percentage and applies when [a] previously determined value of turnover (sales to Biedronka) is exceeded,” the statement explained. “It is the second discount that the office has reservations about. Firstly, Biedronka’s suppliers do not know its amount, and secondly to give such a discount by suppliers is punishable by a contractual penalty.”
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By GlobalDataIt continued, quoting UOKiK president Marek Niechcial: “In our opinion, the owner of Biedronka stores has violated good practices and taken advantage of a weaker party to the contract. Jeronimo Martins Polska has a stronger negotiating position and we suspect that it is using it unfairly.
“As a result of its practices, suppliers of food products, mainly fruit and vegetables suppliers, are not sure whether they will have to give an additional discount or how big it will be. Thus, when entering into a contract, they do not know how much they will earn. Our action aims at improving the situation of farmers. It should be remembered that forcing discounts by sales network may put great financial pressure on them.”
In a statement provided to just-food, Biedronka said it would not comment on proceedings but added: “We fully cooperate with UOKiK hoping for fast clarification of doubts on the side of the Office. We would like to ensure that when developing relationships with our suppliers, JMP have always strictly respected the rules of law.”
Meanwhile, Alliance Bernstein said in a note to clients: “The regulator feels that this may be a case of predatory behaviour by the largest Polish food retailer, violating established good practice and exposing relatively vulnerable farmers and small businesses to unpredictable and potentially large fluctuations in prices and earnings.
“Whilst Biedronka is a strong and formidable retailer, there are signs of stretch and saturation in the operating model. This news confirms our concerns. The real impact of such an investigation would not be the value of the fine, but the beginning of a potential reset of the Polish profitability (which we have not factored in our model yet).”
