Belgium Cracks Down on “Category Captains” with Competition Fine

The Belgian Competition Authority recently fined several pharmaceutical suppliers for anti-competitive practices. The suppliers, acting as “Category Captains”, used category management of over-the-counter medicines in retail pharmacies designed to exclude rivals and favour their own products. Our Competition, Antitrust & Foreign Investment team explores how category management arrangements between suppliers and distributors can lead to competition law concerns.

What you need to know

• The Belgian Competition Authority fined three pharmaceutical companies over €11 million in a category management infringement decision.
• Category management is a type of agreement whereby the distributor entrusts a supplier with marketing a category of products.
• Category Management Agreements may be anti-competitive where they facilitate collusion or result in the foreclosure of competing suppliers.
• Distributors and suppliers should review their Category Management Arrangements to ensure they do not create competition law risks.

The Belgian Competition Authority (BCA) fined three pharmaceutical suppliers for using category management practices to shut out rivals. For over 15 years, the suppliers coordinated the display and placement of over-the-counter (OTC) medicines to preference their own products at the expense of competitors. For their involvement, the three companies settled with the BCA and were fined over €11 million in total.

What is category management?

Category management refers to a type of agreement between a distributor and a supplier or group of suppliers. In this arrangement, the distributor entrusts the supplier, known as the “Category Captain”, with the marketing of a specific category of product. The Category Captain advises the distributor on a range of marketing matters including:

• Display
• Placement
• Allocation
• Promotions, and
• Pricing strategies

Designating a Category Captain can lead to efficiencies for distributors, such as access to the suppliers’ marketing expertise.

What is the competition law concern?

Category Management Agreements do not generally raise competition law concerns and are not prohibited in themselves. In line with this, Irish and EU competition law may allow Category Management Agreements under a safe harbour for vertical agreements where the supplier and distributor each have less than 30% market share.

However, if not properly implemented, Category Management Agreements may be anti-competitive. This may be the case if, for example, the agreement:

• Leads to unfairly shutting out other suppliers, if the Category Captain can block, or make it harder for, competing products to be sold.
• Facilitates collusion between distributors when the same suppliers serve as Category Captain for all or most of the competing distributors
• Helps suppliers collude through the exchange of sensitive information via retailers.

The BCA alleged that pharmaceutical suppliers jointly set up a category management arrangement for the placement of OTC medicines. The BCA found that the Category Captains used their influence to limit the visibility and availability of rival products in retail store. They did this through the design and implementation of product visual representations or diagrams known as “planograms”. Planograms show retailers how and where products should be displayed to increase sales and improve visual appeal for consumers. However, in the present case, the planograms aimed at:

• The exclusion of the competitors’ OTC medicines

• Favouring their own products, and

• Monitoring the Category Management Agreement.

Implications for businesses

The BCA’s recent decision is a reminder that caution should be exercised when implementing a Category Management Agreement. Businesses should ensure they do not breach competition laws, as this could lead to significant fines.

Distributors and suppliers should:

• Proactively review existing Category Management Agreements to ensure that they do not raise any competition law concerns

• Avoid arrangements that enable suppliers to exclude potential competitors, such as delisting, shelf placement or promotional priorities.

• Clearly define and limit the scope of the role of Category Captains to ensure that decisions related to product placement remain with the distributor.

• Obtain specialist competition law advice before entering into Category Management Agreement.

Please get in touch with a member of our Competition, Antitrust & Foreign Investment team for more information.

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The content of this article is provided for information purposes only and does not constitute legal or other advice.