ACCC v Australian Safeway Stores Pty Ltd

The joint judgement of Justices Heerey and Sackville provide a neat overview of the facts (from para 8).

Briefly, Justices Heerey and Sackville observed that at the relevant time bread in Victoria was produced by three major 'plant bake' firms (Tip Top, Quality Bakers Australia Ltd and Sunicrust) and by independent bakers and hot bread shops. Each plant baker had a premium brand and a secondary brand, including 'price-fighting' bread, such as Sunicrust's 'Captain Cutless' and Buttercups 'Budget Family Fresh', with those companies contracted to supply Safeway and which was designed to meet competitive threats.

At the retail level bread was sold by hot bread shops (who baked on premises), supermarkets (in store and from wholesale suppliers) and by 'route trade' sellers (eg, milk bars). Major retailers also had 'generic' brands - 'Home Brand' in the case of Safeway, which was supplied by Sunicrust. They noted that bread's significance for supermarkets went beyond it's character and constituted a 'communicable' product - a product indicating the retailers general competitiveness.

Despite the different brands and prices, bread was considered essentially generic.

[A8] In 1994 and 1995, bread in Victoria was produced by three major firms, referred to as "plant bakers", and by independent bakers and hot bread shops. The three plant bakers, who together supplied some 80 per cent of all plant-baked bread sold in Victoria, were Tip Top, Quality Bakers Australia Limited, which carried on business under the name of "Buttercup Bakeries" ("Buttercup") and Sunicrust Bakeries Pty Ltd ("Sunicrust"). Apart from sales by Tip Top at its Preston Markets stall, the three plant bakers' entire production was sold by wholesale.

[A9] On the retail side, bread was also sold by hot bread stores, which baked bread on their retail premises, and by "in-store bakeries". The latter were set up within supermarkets as an attempt to replicate hot bread shops. In some instances bread was baked, or at least partly prepared for sale, in the in-store bakeries; more frequently, in what were called "cold spots", the bread was acquired from a wholesale supplier wrapped and ready for retail sale. Finally there was the "route trade" consisting of small retailers, such as milk bars.

[A10] Bread has a significance for a supermarket that goes beyond its character as a staple food. As the primary Judge found, it is a "communicable" product: that is to say, in a consumer's mind, it is indicative of a retailer's general price competitiveness.

[A11] At the relevant times, bread was marketed under different brands. Each plant baker had premium brand, or proprietary, bread and also a secondary brand bread. Premium brand bread was sold under a brand that was heavily advertised and promoted, such as Tip Top's "Sunblest", Sunicrust's "Suni" and Buttercup's "Wonder White". Secondary brand bread was sold under a brand that received little or no advertising or promotion, such as Thwaites or Tip Top's Eureka, the latter being sold in a plain-wrap package with minimal brand promotion. A further category of secondary bread was referred to as 'price-fighting' bread. Safeway entered into contracts with plant bakers to supply bread under a particular brand, such as Sunicrust's "Captain Cutless" and Buttercup's "Budget Family Fresh". The "price-fighting" bread was brought in at short notice in order to meet competitive threats.

[A12] A major retailer could also have its own "generic" brands. A generic brand was owned by the retailer and was applied to many items in addition to bread. In the case of Safeway, its generic brand was "Home Brand", which was supplied by Sunicrust. Buttercup supplied the Davids group of supermarkets with its "Black & Gold" generic bread.

[A13] Notwithstanding the importance attached to brands by bakers, retailers and consumers, and the substantial price differentials involved between premium, secondary and generic brand breads, the bread itself was essentially the same product. ...

The ACCC alleged that the conduct engaged in by Safeway breached sections 45 (as price fixing), 46 (misuse of market power), 47 (exclusive dealing) and s 48 (resale price maintenance) of the Trade Practices Act.

[A14] In the nine incidents, an independent retailer near a Safeway supermarket commenced selling bread of a particular plant baker at a discounted price. Safeway then "deleted" (that is, ceased to stock, display and sell) bread of that plant baker. Safeway adduced evidence that, before a deletion, it sought from the plant baker a "case deal" and only made deletions when the case deal was refused. The term "case deal" was an expression used to refer to an arrangement whereby a supplier provided a discount, rebate or special deal in connection with the supply of its products. ...

[A15] [The primary Judge found that] in five of the nine incidents, there had been [a request for a case deal by Safeway] and that in another two the evidence did not enable him to determine whether a request had or had not been made. In the remaining two incidents his Honour found that no request for a case deal had been made.

[A16] ... the bread that the independent retailers were discounting was secondary brand bread. However the bread for which Safeway sought case deals was the plant bakers' premium brand bread. [In] each of the nine incidents there were "over-deletions" by Safeway; that is to say, Safeway deleted a wide range of the plant bakers' bread and related products and not just the same kind of bread as the independent stores had been discounting. ,,, following a deletion Safeway always brought in price-fighting bread supplied by a plant baker other than the one whose bread had been deleted.

[A17] The Commission alleged that there was a market in Victoria for the supply of bread products on a wholesale basis to retailers, that Safeway had a substantial degree of power in that market and that Safeway had taken advantage of that power for the purposes of damaging competing independent stores by denying them access to cheap bread (s 46(1)(a)). The Commission also alleged that Safeway had taken advantage of its market power for the purpose of deterring or preventing the plant bakers and the independent retailers from engaging in competitive conduct in, respectively, the wholesale market and the retail markets in which the independent stores were located (s 46(1)(c)).

The ACCC alleged that Safeway had contravened s 46. In particular, they alleged that Safeway 'took advantage of its substantial degree of power in the wholesale bread products market in Victoria for the purpose of deterring or preventing Tip Top from engaging in competitive conduct in that market' (para 38 Appeal).

[A19] The Commission also alleged that Safeway contravened s 47 of the Act by engaging in exclusive dealing. According to the Commission, Safeway had offered to acquire bread from the plant bakers on condition that they not supply bread to independent retailers except where the independent retailers did not sell such products at prices cheaper than Safeway's competing retail prices. Also, Safeway had refused to acquire bread products from plant bakers because they had supplied bread to independent retailers who had sold bread at prices cheaper than Safeway's retail prices.

The ACCC alleged that Safeway had contravened s 45.

Forthcoming

Justices Heerey and Sackville describe Justice Goldberg's findings as follows (paragraph numbers relate to appeal judgment). Briefly, Justice Goldberg held that none of the alleged contraventions had been established.

Misuse of market power

Justice Goldberg held that, while Safeway had a substantial degree of market power, it had not taken advantage of that power for a prescribed purpose because the necessary connection between market power and conduct was lacking.

Justice Goldberg concluded 'that the relevant market was the market in Victoria for the supply on a wholesale basis of bread products to food retailers' and that 'Safeway had a substantial degree of power in that market' [para 273 appeal judgment] [emphasis added]

[A18] ... in two of the nine incidents, at Frankston and at Albury in May 1995, where no case deals were sought, Safeway's purpose was to punish the plant bakers concerned (Buttercup and Tip Top, respectively) and to deter them from continuing to sell bread to the independent retailer at a discounted price. . While his Honour found that Safeway had a substantial degree of power in the wholesale bread market, he held that it had not taken advantage of its power for a proscribed purpose. While Safeway had used its market power, in the sense that it had engaged in conduct that was available to it, there was no necessary connection between its market power and the conduct in which it had engaged. [emphasis added]

Exclusive dealing

[A20] The primary Judge concluded that there was no contravention of s 47(4). His Honour characterised the critical issue that arose under s 47(4) as whether the condition imposed by Safeway was that the plant baker in each instance only supplied bread to the relevant independent retailer "to a limited extent". His Honour considered that the expression did not sit easily with a condition that a supplier would supply whatever quantity of goods were required by a purchaser, but only if the purchaser did not sell them below a particular price.

[A21] In relation to its claims based on s 47(5) the Commission said that in each relevant case Safeway refused to stock a plant baker's bread because the particular plant baker had supplied secondary or generic brand bread to an independent retailer. The refusal was constituted by the deletion of the plant baker's products from the relevant Safeway supermarket. His Honour held that s 47(5) does not cover a situation where the reason for the refusal to acquire goods is that the supplier has supplied goods to another person for a particular price. Accordingly, he concluded that the conduct of Safeway in relation to the nine incidents did not contravene s 47(5) of the Act. It was therefore unnecessary for his Honour to make a finding as to whether any condition was imposed or any acquisition was refused for the purpose of substantially lessening competition ( s 47(10)).

Price fixing

[A22] The Preston Market incident did not involve any independent retailer. Tip Top conducted a stall at the Preston Market at which it sold its bread by retail to members of the public. Tip Top products had been deleted from Safeway's Preston store, which was in competition with Tip Top's stall. The Commission alleged that Safeway and Tip Top, in contravention of s 45 of the Act, entered into an arrangement or understanding to fix the prices at which bread was sold at the Preston Market stall. His Honour found that, although there had been discussions between officers of Tip Top and Safeway relating to the fixing of prices, he was not satisfied that an arrangement or understanding had been entered into between persons with authority to act on behalf of Safeway. [emphasis added]

Justice Goldberg concluded 'that the relevant market was the market in Victoria for the supply on a wholesale basis of bread products to food retailers' and that 'Safeway had a substantial degree of power in that market' [para 273 appeal judgment] [emphasis added]

Further details forthcoming

[A39] The critical question posed by s 46(1) of the Act is whether Safeway took advantage of a substantial degree of power in the relevant market for one of the proscribed purposes. That question requires attention to be focused on Safeway’s actions and the purpose or purposes with which those actions were carried out. ...

Further details forthcoming

Forthcoming

 

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Appeal allowed in part

[A45] The Commission succeeds on the s 46(1) case against Safeway in relation to the incidents at Frankston, Cheltenham, Vermont and Albury (May 1995) and on the s 45(2)(a)(ii) case in relation to Preston Market. The matter is to be remitted to the primary Judge to consider the liability of Mr Jones and questions of penalty and the costs of the trial. Otherwise the appeal should be dismissed. ...

Details forthcoming

Agreed with Justices Heerey and Sackville except in relation to the sections dealing with substantial degree of market power and taking advantage of market power. His Honour was not convinced that there was a taking advantage of market power contrary to s 46 or that Safeway had, at the relevant time, 'a substantial degree of power as an acquirer of bread by wholesale from plant bakers'.

Australian Government Solicitor, 'Misuse of market power and price fixing' (22 March 2006) (Express law - fast track information for clients)

John Carmichael 'Tip top result goes stale: ACCC v Australian Safeway Stores Pty Ltd (No 2) (2002) 7(2) Deakin Law Review 387-407

Click here for trial judgment from AustLII

Click here for full case from AustLII (Full Court)