Tobacco manufacturers and retailers fined over UK price fixing

Saturday, April 17, 2010

Several tobacco manufacturers and retailers in the United Kingdom have been fined a total of £225 million for price fixing. The fines were imposed by the Office of Fair Trading (OFT) following an investigation lasting seven years. It is the largest penalty ever issued by the OFT for breaches of the 1998 Competition Act, with the case involving two major tobacco makers and numerous British supermarkets.

Together the manufacturers involved, Imperial Tobacco (whose brands include Golden Virginia and Lambert & Butler) and Gallaher Group (who own Silk Cut and Benson & Hedges among others) make almost 90% of all cigarettes and roll-ups sold in the UK. They were fined £112 million and £50 million respectively.

The supermarkets facing the largest penalties were Asda and The Co-operative Group, at £14 million each. Other stores fined were First Quench, Morrisons, Safeway, Shell garages, Somerfield, T&S Stores (now One Stop) and TM Retail. Also taking part in the price fixing were Sainsbury’s, though they received immunity from being fined after alerting the OFT and co-operating with the investigation. Some of the other companies also earned reductions in their fines through co-operation with the OFT.

Similar allegations against Tesco were not pursued due to a lack of evidence.

Imperial Tobacco denied the charges, claiming in a statement that its dealings with the retailers were simply legitimate “promotional arrangements”. They have said they are considering an appeal against the decision.

In a press release the OFT said that the fines would send out a strong message. “Practices such as these, which restrict the ability of retailers to set their resale prices for competing brands independently, are unlawful.” said Simon Williams, OFT Senior Director of Goods. “They can lead to reduced competition and ultimately disadvantage consumers.”

“This enforcement action will send out a strong message that such practices, which could in principle be applied to the sale of many different products, can result in substantial penalties for those who engage in them.”