U.K. Tobacco Firms, Retailers including Shell Fixed Prices, OFT Says

Bloomberg: U.K. Tobacco Firms, Retailers Fixed Prices, OFT Says (Update3)

By Loveday Morris and Amy Wilson

April 25 (Bloomberg) — Tesco Plc, Imperial Tobacco Group Plc and eleven other companies were accused of fixing cigarette prices between 2000 and 2003 by the U.K.’s antitrust regulator, opening the first formal probe of tobacco sales.

The Office of Fair Trading said today it’s investigating whether 11 retailers and two manufacturers linked the price of tobacco brands made by competing companies. The regulator in London is also examining whether Imperial, Japan Tobacco Inc.’s Gallaher unit and five retailers shared information on prices.

The probe is the second in the last six months involving U.K. retailers. In December, supermarkets including Wal-Mart Stores Inc.’s Asda and J Sainsbury Plc agreed to pay fines of as much as 116 million pounds ($228.5 million) for fixing milk prices in 2002 and 2003 after an Office of Fair Trading probe.

“The law is very clear about this and the retailers have just had their knuckles rapped over milk,” said Richard Perks, an analyst at Mintel International. “Price fixing is illegal. If they’ve done that then they’ve just been incredibly stupid.”

Imperial Tobacco, Europe’s second largest publicly traded cigarette maker, said in a statement that it hasn’t done anything to harm consumers. The Bristol, England-based company said it takes compliance with competition law “very seriously,” and “rejects any suggestion that it has acted in any way contrary to the interests of consumers.”

Shell, Somerfield

Imperial, whose brands include Davidoff, Embassy and Rizla, accounts for almost half the cigarette market in Britain, where prices are among the highest in Europe. A pack of cigarettes costs 5.55 pounds ($11.20) on average in the U.K., triple the Spanish price and almost two-thirds more than in Belgium, the Tobacco Manufacturers’ Association said last month. Taxes make up about fourth-fifths of the price.

Royal Dutch Shell Plc, Somerfield Ltd., Co-operative Group Ltd., William Morrison Supermarkets Plc, Safeway Plc, First Quench Retailing Ltd., T&S Stores Plc and TM Retail Ltd. were also named by the OFT in relation to the alleged anti-competitive practices. Safeway is now owned by Morrison. First Quench owned the Thresher liquor store chain in the period under investigation and convenience store operator T&S has since been bought by Tesco.

“For markets to work well for consumers, it is a fundamental principle that pricing decisions should be made independently,” OFT Chief Executive Officer John Fingleton said in a statement. He said that “at this stage it should not be assumed that the parties involved have broken the law.”

Retailer Responses

The announcement comes two days after the OFT apologized and paid 100,000 pounds to Morrison in order to settle a defamation action linked to the milk-price fixing inquiry. The regulator last week accused 112 construction companies of rigging bids, in the country’s biggest ever cartel investigation into the industry.

The OFT said it may, where applicable, seek to attribute liability to parent companies.

Japan Tobacco is reviewing the statement and has no comment, said spokeswoman Yukiko Seto in Tokyo. Gallaher, the maker of Silk Cut cigarettes, was bought by Japan Tobacco last year.

Tesco spokesman Trevor Datson said the supermarket chain “does not believe Tesco has acted in a way that has harmed consumers and we will make this clear to the OFT when we see details of their allegations.”

Asda said in an e-mail that it will be “studying in detail” the OFT’s so-called statement of objections, and declined to comment further. Co-op and Morrison said they would cooperate with the probe. Thresher and Sainsbury didn’t have a comment immediately. Messages left for Shell, Somerfield and TM Retail weren’t immediately returned.

“All this does is reflect the supermarkets’ power in the market,” said Mike Pullen, head of European competition at London-based law firm DLA Piper. “Cigarettes is an interesting one because you can’t do normal marketing strategies due to advertising restrictions.”

To contact the reporter on this story: Loveday Morris in London at [email protected].

Last Updated: April 25, 2008 06:42 EDT

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