Can’t afford to get drunk...

Why Belgians can’t afford to get drunk at New Year

Fragmentation of the internal market is a long-standing bugbear of Margrethe Vestager.

By EMMET LIVINGSTONE AND NICHOLAS HIRST

Fighting excessive beer prices has to be one of the most popular things the EU has ever done.

European Commissioner for Competition Margrethe Vestager had an early Christmas present for Belgium’s (many) beer drinkers in late November, when she formally charged the world’s biggest brewer, AB InBev, with abusing a dominant position to rip off consumers in its home market.

The case, however, is far more than a play for popularity in the bars of Brussels and Antwerp. Vestager’s charge sheet actually represents the latest offensive in a far bigger campaign that she is waging across many sectors to break down the visible and invisible barriers that mean Europe’s 25-year-old single market is still highly fragmented.

In the beer case, Vestager’s preliminary finding was that AB InBev tried to stop Belgian supermarkets from importing its popular beers Jupiler and Leffe from the Netherlands and France, where they cost less because there is more competition.

Vestager argued not only that “Belgian consumers may have had to pay more for their favorite beers,” but that AB InBev’s alleged “practices would breach EU competition rules, because they deny consumers the benefits of the EU single market: choice and lower prices.”

This is the issue that really infuriates the Danish commissioner: companies trying to break up the EU’s internal market to their own advantage. On moving to Brussels, she expressed frustration about the media sector’s divide-and-rule tactics that meant she could no longer tune into her beloved Danish television dramas. She complained: “I, for one, cannot understand why I can watch my favorite Danish channels on my tablet in Copenhagen — a service I paid for — but I can’t when I am in Brussels.”

Each sector uses different strategies to slice and dice the single market, and she has already taken on cases in sectors such as energy, technology and transport.

In the case of AB InBev, she accused the company of removing French- and Dutch-language text from labels on cans sold in the Netherlands and France, and blocking certain Dutch retailers from taking advantage of promotional sales — all with the aim of preventing exports into Belgium.

AB InBev declined to comment on the details of the case beyond saying that it took compliance “very seriously” and had “been working constructively with the European Commission since the investigation was announced in June 2016.”

Stuart MacFarlane, the company’s zone president for Europe, also insisted at a recent POLITICO event that the company was not trying to harm the single market. “Contrary to some views, some may feel we are a little too attached to our borders these days, but I can say our company is fully committed to  [the EU internal market],” he said.

Agustín Reyna, a lawyer with European consumer organization BEUC, said it appeared that case investigators in Brussels were breaking new ground by examining non-contractual practices, such as labels, that suppliers use to restrict cross-border trade.

“The industry can be very creative in trying to bypass antitrust rules to keep the domestic offer at a level which allows them to illegally maximise the purchasing power of consumers,” said Reyna.

While the Commission is trying to prioritize the single market, competition policy is often the only hammer it can wield to make sure that it works.

Single market 2.0

Vestager’s single market adversaries range from the mighty to the relatively small. One of her biggest opponents was the Russian gas export monopoly Gazprom, which the Commission pushed to step back from contracts that prevented gas being sold from one national market to another.

On the smaller side, she is investigating video game makers for making it difficult for gamers in one country to buy and use cheaper games from another, as well as tour operators for charging holidaymakers in different countries different prices for the same hotel room.

The message to the food sector is clear. Retailers have long been deeply concerned about “fast-moving goods” such as food, drinks and toiletries that command varying prices in neighboring countries.

Known among retailers as “territorial supply constraints,” suppliers allegedly use an array of tactics to prevent supermarkets from one country from hunting for bargains in another: The packaging varies, the recipes are different or — in the case of Central and Eastern Europe — the quality is worse.

Retailers complain that they can’t fight back because shoppers expect certain branded goods in stores.

“Their bargaining position is so great, our margins are so small,” said Neil McMillan, the director of advocacy and political affairs at Brussels supermarket lobby EuroCommerce, who added that big brands had partitioned the internal market for some 20 years.

Still, it remains to be seen whether the beer probe will open the floodgates to more cases in the retail business. Most people working in the industry saw the AB InBev case as a one-off, and were unaware of any other investigations into similar practices by the EU’s highly secretive competition authorities.

Food and drinks conglomerates, on the other hand, argue that these practices reflect different consumer demands and tastes — not to mention varying national rules that govern how to market a product. As one person from the industry put it: “Meeting preferences does not equate to barriers.”

A competition partner at a Brussels law firm said clients from various industries frequently ask about the legal options for segregating markets, with a view to controlling price. “They like to have price differentials — it’s not a theoretical issue. I see it quite a bit,” the lawyer said.

Skimming and scheming

The idea that Belgians may be overpaying for goods is not new.

The Benelux Union launched an inquiry into territorial supply constraints last year but the final report will not be published until early 2018.

The Belgian competition authority concluded a probe into supermarket prices in 2012, finding prices in Belgium were on average 10 percent higher than in Germany and the Netherlands, and 7.5 percent higher than in France.

Labeling and packaging may play a role, it warned — but so did Belgians’ willingness to pay more for the same quality.

Also, supermarkets operating in large countries such as Germany can negotiate larger discounts because they bought in bulk, which contributed to products being cheaper across borders. “Retailers in Luxembourg are placed at a competitive disadvantage,” one of the industry officials said.

Representatives of large consumer brands argue that there is no real problem on the internal market and that price differences are most often explained by gaps between wage and taxation among different EU countries.

“There’s a perception that manufacturers are driving the price. This is not at all the case,” said Walter Gelens, the chief executive of the Belgian and Luxembourgish brands association BABM. “In fact, it’s the retailer,” he added.

A 2016 study from Belgian consumer association Test Achats, for example, found that Belgium’s Colruyt group sets prices even at the level of different neighborhoods: A basket of consumer goods in a store in the gritty Brussels neighborhood of Schaerbeek is priced slightly cheaper than in an outlet in the more affluent commune of Woluwe-Saint-Pierre.

While Vestager is keen to defend Belgian drinkers, she was flummoxed at a recent event when asked what her favorite beer was.

Seeking a diplomatic way out, she replied: “Here in Belgium there are more than 1,000 beers, so no single favorite.”