In re Hiveloop Technology Pvt. Ltd. Vs Britannia Industries Ltd. (CCI)
The Commission finds that, with respect to the allegation of discrimination between the Informant and other distributors of Britannia, neither the Informant nor its group entity can be said to be similarly placed as other, more than three thousand, distributors of Britannia. In the absence of evidence of any formal relationship between the Informant and Britannia, there may not exist any inherent right to claim any parity, as has been canvassed by the Informant. Further, the Commission notes that Britannia has averred that while undertaking Pilot projects it had offered certain terms, which according to Britannia, is not even extended to its existing distributors. Thus, the Commission does not find any merit in the submissions on the aspect of ‘discrimination’.
The Informant has contended that by not getting terms at par with the existing distributors, while directly dealing with Britannia, it was unable to provide better margins to retailers. In other words, the Informant would be put at a cost disadvantage vis-à-vis other distributors of Britannia. In this regard, the Commission observes that there is no formal relationship between Britannia and the Informant whereby Britannia is obligated to supply to the Informant at terms that the Informant claims should be at parity with other distributors. Britannia and the Informant cannot be yet said to be in a formal business relationship as no agreement appears to exist between them except for a brief period when the pilot project was in operation. In any case, the conduct of Britannia does not appear to have caused any AAEC or likelihood of AAEC in view of the discussion above.
The Commission also notes that Britannia did engage with the Informant for some time and has stated to have been dissatisfied with the performance of the Informant. The Informant has stated that Britannia tied its hands by restricting choice of cities of supply as well as did not supply the committed/desired quantities of product. The Commission is of the view that it is not necessary to go into these vexed facts in view of larger finding that no obligation to deal has been found on the part of Britannia in the facts and circumstances of the case.
As far as factors as enumerated in Section 19(3) of the Act are concerned, there are apparently no barriers to entry either in the manufacturers’ market nor in the distributor’s market, considering the presence of large number of biscuit manufacturers (including foreign entrants in recent years) in the upstream and large number of distributors of Britannia in the downstream market. Moreover, there appears to be no existential threat or foreclosure as regards Granary and the Informant, considering that the Informant is an online B2B platform catering to multiple product segments across the country and is not significantly dependent on Britannia’s products. As per information available in public domain, more than 5 lakh products are curated across 2500 brands that are available on the Informant’s platform and it delivers around 1.75 lakh orders daily (both food and non-food category).5 The Commission observes that similar B2B platforms such as Flipkart Wholesale, and Amazon Business are present in the B2B online platforms as well. Thus, in the Commission’s view, there is apparently absence of actual or likely AAEC in the markets.
The Commission further observes that the Informant has not been able to prima facie demonstrate that the non-supply of certain brand of biscuits by Britannia, in respect of which present action has been brought, has impeded competition in the distribution chain. While disruptive technologies undoubtedly enhance efficiency in the market, in the facts and circumstances of the present case, there is nothing to suggest that either the retailer or end-consumers have been facing any supply constraints. If that were the case, no prudent business will allow the demand and supply gap to persist in respect of its products, which would be to its own detriment in the long run. No positive direction can be given to Britannia in this case to directly deal with the Informant, as has been sought, when Britannia has stated about its sound practices of appointing distributors based on careful scrutiny, and considerable number of distributors exist throughout the length and breadth of the country. The Commission is mindful that a large distribution network provides more choices to retailers and consumers, but it cannot stretch this concept too far to support establishment and survival of every downstream entity in the fold, having regard to the underlying product and the existing conditions in the market. Moreover, selective distribution is an industry practice and one of the business strategies adopted by businesses. This falls within the domain of reasonable autonomy given to any trade participant, which autonomy, however, is not absolute. Nothing, however, indicates in this case that the autonomy of Britannia needs to be curtailed. Moreover, as far as the supplies under pilot projects are concerned, the non-engagement to the extent required by the Informant from Britannia prima facie does not seem to have caused AAEC or is likely to cause AAEC in the market, and the Informant has not been able to demonstrate the same except the Informant getting lesser margins. As stated by Britannia, the pilot engagement was of the temporary nature to gauge effectiveness of the project. Moreover, Britannia has stated that the demand projections were exorbitantly large and expressed its inability due to its production plan. Britannia has to cater to its already existing distributors and accommodate a new player, like Granary (which appears to be generating its demand solely through the Informant), in the system, and cannot be compelled to supply as per the demand projections of the Informant, and that too, when there is pilot engagement.
The Commission notes that, in the rejoinder, the Informant states that the Commission is only required to take cognisance of the averments contained in the Information and the documents supplied with such Information. The Commission is of the view that the proceedings before the Commission are inquisitorial in nature and it is at a liberty to call comments from other such persons as it deems necessary to help it form a prima facie view in the matter. In the present case the facts and averments made in the Information were not complete in nature. For example, the role of the Informant in the procurement of Britannia’s biscuits was not coming out clearly when it claims itself to be a B2B platform. Secondly, while referring to the email exchanges in the Information, the arrangement between Britannia and Udaan during Pilot 1 and Pilot 2 was also not clear in the Information.
The Commission is of the prima facie view that, in the present case, the Informant has not been able to demonstrate any exclusionary practice on behalf of Britannia, within the purview of the Act, which may hinder the development of a competing supply chain for the products of Britannia.
As far as allegations under Section 4 of the Act are concerned averred for the first time in the rejoinder, the Commission does not find any abuse, more so as the Informant has failed to establish any right on its part. Therefore, further assessment on this aspect is not required. In any case, the Commission has observed that a narrow market, based on segmentation, may not be justified in the facts and circumstances of the case.
Thus, the Commission is of the opinion that there exists no prima facie case of contravention of the provisions of Sections 3(4) and Section 4 of the Act against Britannia, and therefore, the matter be closed forthwith under Section 26(2) of the Act.
FULL TEXT OF THE JUDGMENT/ORDER OF COMPETITION COMMISSION OF INDIA
1. The present Information has been filed by Hiveloop Technology Private Limited (hereinafter, ‘Informant’/‘Udaan’/ ‘HTPL’) under Section 19(l)(a) of the Competition Act, 2002 (hereinafter, ‘Act’), inter alia, alleging contravention of provisions of Section 3(4) read with Section 3(1) of the Act by Britannia Industries Limited (hereinafter, ‘Opposite Party’/‘OP’/Britannia’).
Facts and allegations as stated in the Information
2. The Informant is stated to be a network-centric Business-to-Business(B2B) trade platform/ marketplace engaged in buying, selling and trading in different product categories, including Fast Moving Consumer Goods (FMCG), electronics, pharmaceuticals, lifestyle, home and kitchen appliances, fruits and vegetables, toys, and general merchandise of different brands. It brings traders, wholesalers, retailers, manufacturers, and brands in India on to a single platform. It allows retailers and businesses to source merchandise from manufacturers, brands, white labels, importers, etc. It claims to be the largest B2B platform leveraging the use of technology and bringing innovation and efficiencies in the digital B2B market with a coverage of 50 cities. The Informant is also stated to provide credit through Udaan credit system, which facilitates smooth working of the operations on its platform, and therefore, retailers perceive it as a reliable partner for their business.
3. The OP is stated to be one of the largest food companies with, a diverse portfolio of products, such as biscuits, breads, cakes, rusk, and dairy products being sold across more than five million retail outlets in the country. Among all Britannia’s biscuit brands, ‘Good Day’ and ‘Marie Gold’ are the fastest moving and highest demanded in the biscuits segment and stated to be the Stock Keeping Units (SKUs), and thus, are ‘must have’ stock for any distributor. According to the Informant, SKUs are certain categories of products within the brands which are demanded more compared to other variants of the same brands.
4. Based on the following factors, the Informant has delineated the relevant market to be considered in the instant case as ‘market for mid-premium segment biscuits in India’:
4.1. Biscuits can be distinguished on the basis of their nature, characteristics, taste, price and shelf-life. ‘Good Day’ and ‘Marie Gold’ biscuits of Britannia have been developed into ‘legacy brands’ by virtue of effective marketing over a very long period of time and corresponding brand loyalty exhibited by customers.
4.2. Industry trends suggest that consumer preference is shifting away from glucose type biscuits, which consists of mass-segment biscuits (valued at below Rs. 100 per kg), to non-glucose type biscuits, comprising mid-premium segment (valued at Rs. 100 per kg) and premium segment (valued at more than Rs. 100 per kg). The aforesaid three biscuit segments are clearly distinguishable in terms of Section 19(7)(b) of the Act. It is stated that certain brands of biscuits in the mid-premium segment commands a level of brand loyalty that has helped them attain the status of ‘must stock’ item for the retailers (and in turn distributors). Owing to that, mid-premium segment biscuits must fall in a separate relevant market in terms of the provisions of Section 19(7)(c) of the Act. ‘Marie Gold’ biscuits fall within the mid-premium segment and, with 60% share in the segment, Britannia leads the market. Britannia’s ‘Good Day’ biscuits are ‘cookies’ falling under ‘premium’ segment and is the market leader in the ‘cookies’ segment, with over 33% market share.
Market Share/Market Power of Britannia
5. The Informant has quoted the data from A.C. Nielsen in the Forbes Cover Story and stated that Britannia wielded a market share of approximately 30.8% for FY 2017-18, 31.2 % for FY 2018-19, and 32.1% for FY 2019-20 in the broader biscuits market. It also enjoys high profitability and strong brand loyalty, which confirms that it possesses strong, durable, and consistent market power. The demand for Britannia biscuits is primarily driven by its specific brands ‘Good Day’ and ‘Marie Gold’, which are fast moving products and high demand drivers for Britannia and contribute up to 80% of its revenues. Its closest competitor, Parle, had a market share of approximately 27% in the broader biscuit market in FY 2020.
Allegations
6. There has been a trading arrangement of a vertical nature between the Informant and Britannia since 2019. There were numerous attempts on behalf of the Informant since then to improve the trading relationship between the two parties so as to ensure that the Informant gets the right mix of Britannia’s products. However, the same have not been provided deliberately by Britannia, which is in stark contrast to its arrangement with its other distributors. Despite consistent efforts and attempts to deal in good faith on terms at par with other distributors, the Informant has been unable to secure fair treatment from Britannia.
7. It is alleged that the fast-moving SKUs are provided in a very restricted manner to the Informant. Despite multiple rounds of discussions and meetings, Britannia categorically denied providing the Informant: (i) the requisite quantity of SKUs due to which the Informant is unable to meet the demand on its platform, (ii) the requisite quantity of cheaper/smaller quantity product variants for these brands that drive the maximum demand in the market, and (iii) access to SKUs for other Tier 1/Tier 2 cities where such products are high in demand. Thus, there is a clear case of constructive refusal to deal on the part of Britannia, which is having an appreciable adverse effect on the market. The Informant is also not given products in geographical markets where its supply network will create efficiencies in the market. Britannia agreed to supply directly to the Informant for a very restricted profile of 10 Tier 2 and Tier 3 cities to run a pilot project and a highly limited allocation of fast-moving SKUs.
8. The Informant stated that, since there is a great demand for Britannia’s products by SMEs, it procures such products from the open market, which increases the final cost to the retailers, restricts the Informant’s freedom to engage with SMEs on its platform, and puts the Informant at a significant competitive disadvantage position qua other distributors.
9. It is stated that, in January 2020, a pilot project was initiated in four cities encompassing the Delhi/NCR region to better the terms of engagement. The said business arrangement of Britannia with the Informant came to a standstill post the onset of the COVID-19 pandemic in March 2020. Both parties again met on 09.11.2020 to discuss the mechanism for developing their direct business arrangements.
10. The Informant, while referring to the email dated 05.04.2021 (minutes of meeting held on 01.04.2021 between both the parties), highlighted issues such as meeting less than 5% of the demand on the Informant’s platform by Britannia. However, such issues remained unresolved.
11. It is stated that, while confirming its ‘Action Points’, Britannia reverted to the Informant regarding the reasons of rationing supply its products. Britannia confirmed to provide the Informant with adequate SKUs to meet the existing demand and to extend launch of products to all 50 cities where the Informant has its presence. Udaan, in the same mail, also attached its demand forecast for the month of April 2021 for effecting supplies accordingly.
12. Britannia, vide email dated 06.04.2021, intimated its closure of the forecasting cycle for the month of April 2021 and its inability to meet the additional demand for SKUs by the Informant. The Informant, thereafter, vide its email dated 07.04.2021, requested its demand forecast of April 2021 to be considered as demand forecast for May 2021 as well. According to the Informant, Britannia replied, vide its email dated 17.04.2021, that the forecast cycle for May 2021 was already complete by 15.04.2021.
13. The Informant, thereafter, sent an email dated 21.04.2021 to Britannia, stating that none of its ‘Action Points’ were fulfilled, to which Britannia responded that the process to finalise the list of cities and stock allocation was taking time, as it involved discussion with various stakeholders. Britannia sent another email on the very same day stating about its pilot review in proposed cities as a confidence building measure before scaling up supplies across all cities. However, the rationale behind the selection of the proposed cities was neither disclosed nor discussed with the Informant.
14. The Informant, vide its email dated 24.04.2021, agreed to the pilot review by Britannia and also proposed ‘additional cities’, a mix of Tier-1 and Tier-2 cities. Britannia, in its email dated 05.05.2021, reiterated its stand to proceed with only the proposed cities with limited quantities.
15. A detailed list of SKUs provided by Britannia where the allocation is less than 70% (sent by Britannia along with email dated 05.05.2021) is as follows:
