My colleague Tijana Kojović wrote earlier this month about the decision of the Serbian competition authority fining two major coffee producers in Serbia, Atlantic Group and Strauss Adriatic for concerted practice on the market of wholesale of ground coffee.
During the investigation, Atlantic and Strauss signed an agreement whereby Atlantic’s Serbian subsidiary Atlantic Grand (“Atlantic Grand“) acquired 100% shares in Strauss Adriatic d.o.o. Serbia. The antitrust authority had therefore to rule in parallel on the restrictive agreement between the two actors that it had been investigated and on their proposed concentration. I will focus in this post on the latter ruling.
Relevant market
When notifying the transaction in June 2023, Atlantic Grand proposed that the relevant product market should encompass all types of coffee. However, the Commission maintained that the substitutability analysis and the European Commission’s practice speak in favour of more granularly defined product markets. It delineated five separate product markets at the production and wholesale level: (i) espresso coffee, (ii) instant coffee, (iii) filter coffee, (iv) coffee capsules, and (v) traditional roasted coffee.
Competition concern
The Commission focused its review on the competition concerns the transaction posed for the market of production and wholesale of traditional roasted coffee. It established that the transaction could affect the structure of that market to a significant extent, given that the combined market share of the concentration participants amounted to 70-80%. It also took account of the past antitrust violations of the concentration participants that were the subject-matter of its investigation, concluding that “there is a concern about their market activities after the implementation of the transaction”. In that context, in November 2023, an in-depth investigation regarding the effects of the proposed transaction was initiated.
Following the gathered evidence, as well as the feedback received from market participants, customers and relevant institutions, the Commission issued a Statement of Objections stating that Atlantic Grand may propose commitments to remedy potential negative effects of the transaction.
Commitments
To address the concerns set out in the Statement of Objections, Atlantic proposed a mix of divestment, behavioral and reporting commitments subject to the fulfillment of which the transaction was ultimately approved.
(i) Divestment measures
Atlantic Grand committed to undertake its best efforts to divest its coffee processing and production facility in Surčin. This divestment is aimed at reducing Atlantic Grand’s market share by facilitating the entry of new competitor or strengthening the position of an existing one.
Atlantic Grand is required to erect a Chinese wall between the Surčin factory and the remainder of its business to prevent exchange of business-sensitive and confidential data, while ensuring the maintenance of the Surčin factory. Atlantic Grand is also required to appoint independent trustees to supervise the divestment and communicate with potential buyers.
The divestment must be completed within 18 months of the trustees’ appointment, with an option for a six-month extension if necessary. If Atlantic Grand fails to implement the divestment measure, it may propose an appropriate alternative the acceptance of which will be subject to the Commission’s assessment as to whether Atlantic Grand has in fact made its best efforts to sell the factory designated for divestment.
If the divestment is successful, Atlantic Grand will have to refrain from reacquiring the divested facility or exercising control over it in any other way or form, for a period of five years.
(ii) Restrictions on coffee production contracts
The conditional approval orders Atlantic Grand to refrain from renewing the existing contract manufacturing agreements or entering into new ones for the production of coffee under private labels, for a period of five years. The aim of this prohibition is to make room for the existing market participants to strengthen their market position and enable new producers to enter the market.
(iii) Reporting obligations
Atlantic Grand also undertook to submit semi-annual reports to the Commission on the quantity and price of imported raw coffee, its combined production capacity and utilization rates, its combined annual production volumes, total quantity and wholesale prices of traditional coffee, its sales channels and brands, as well as on its exports. It also undertook to annually submit to the Commission its general terms of sale. All of these commitments are valid for a period of five years and serve to facilitate the monitoring by the Commission of potential abuse of newly acquired market power.
Conclusion
In Atlantic/Strauss, the Serbian Commission for Protection of Commission took a practical, market-oriented, approach to a challenging situation in which it was asked to approve a merger between two competitors under investigation for collusion. The conditional approval of the concentration preserves the freedom of the market undertakings to merge while imposing reasonable measures to promote competition to the extent such promotion is possible by administrative measures.
