Retailer Palink receives fine for unfair commercial practices to food and drink suppliers

  • 2020-07-05
  • Ieva Natane

The Lithuanian competition authority Konkurencijos taryba found that UAB Palink, one of the major retail companies in Lithuania, infringed the Law on the Prohibition of Unfair Practices of Retailers (Law) when it required from 7 food and drink suppliers to spend all of their preliminary budget intended for sales promotion activities.

The retailer‘s agreements with the suppliers concluded in 2018 and 2019, which Konkurencijos taryba analysed during the investigation, showed that although the sales promotion budget established in the agreements was described as preliminary, by e-mails to 7 suppliers Palink was pushing them to use all of it by the end of the year.

A retail company which has significant market power is allowed to agree with the supplier on the preliminary budget for sales promotion activities, however, such preliminary agreement shall not become obligatory as it occurred in the present case. By exerting pressure on the suppliers in order to make them spend the sales promotion budget planned for the relevant year, Palink infringed the Law which stipulates that retailers are prohibited from requiring from the suppliers to pay a part of the costs of sales promotion carried out by the retailer or together with it or to compensate for such costs in any other way, except for the cases where there is a written agreement between the retailer and the supplier regarding the amount of costs to be paid and sales promotion activities to be applied.

According to Konkurencijos taryba, obligation for the supplier to participate in the implementation of sales promotion activities imposed by the retailer might not have been beneficial for the supplier as a weaker party. If the supplier had not experienced pressure from the retailer, he could have planned sales promotion activities independently.

Palink has been fined EUR 78,000 for the infringement of the Law.

The authority‘s decision is subject to appeal.

The Law sets prohibition for five major retailers (MAXIMA, RIMI, IKI, NORFA, LIDL) to carry out any actions contrary to fair business practices whereby the operational risk of the retailers is transferred to suppliers or they are imposed supplementary obligations or which limit the possibilities of suppliers to freely operate in the market.

The purpose of the Law is to limit the use of market power exercised by the major retailers and protect the suppliers from unfair commercial practices by retailers. In case of infringement of the Law, a fine of up to EUR 120,000 may be imposed on retail companies.