Soft Drink Competition Act, . on Monopolies and Commercial Law of the Comm. on the Judiciary
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497 both you and your opponent. As I said, the statistics for the annual survey of the soft drink industry — survey of the soft drink industry, are garnered in various sources including maga zines, newspapers, industry contacts, 10 K's, 10 Q's, and annual reports and the best estimates of a given moment, and they change from year to year as can be seen from perusal of past reports. These statistics are inexact as indicated by a major revision made of the entire series and particularly to the extent of 32 percent in Coca-Cola in 1972 due to the availability of new data. These numbers are mainly put together to ascertain the general size and shape of the industry as a whole rather than be overe::act on the individual companies, and therefore, the numbers of the individual companies should not be taken as Gospel. Page 1624, Lines 18-25 THE WITNESS: Of those companies that I fully don't have in there or, as I said before, sort of a fudge figure to a degree. I just took a certain percent and presumed that I have covered those percentages in my best estimates. JUDGE JACKSON: Tell me precisely how did you arrive at this figure? THE WITNESS: Guess work. Page 1633, Lines 8-11 JUDGE JACKSON: ... from the witness's statement it does not exist, and if it did exist it isn't very scientific. In fact, it is totally unscientific. It consists of rumor, gossip, and general conversation and hearsay that he collects. Question 11. What percent of total soft drink sales is controlled by bottlers with a sales volume of under $500,000? Answer 11. Information regarding the percentage of total soft drink sales volume of under $500,000 is not available. Based upon information provided from NSDA membership which represents approximately 75 percent of the soft drink manufacturers in the United-States, we would estimate such sales would be approximately 1 percent. 498 PERCENT ACCOUNTED FOR BY: 4 LASCEST 8 LARCEST 20 LARGEST 50 LARGEST SIC CODE CLASS OF PRODUCT COMPANIES COMPANIES COMPANIES COMPANIES 20430 Cereal breakfast foods 84 96 99 100 2066 Chocolate & cocoa product-; 72 SS o t 100 20821 Canned beer & ale ,59 77 96 1C0 2076 Vegetable oil mill products 45 70 94 100 2079 Shortening & cooking oils 40 61 87 99 2082 Malt beverages 52 70 91 99 20822 Bottled beer & ale 46 65 89 99 2085 Distilled liquor, except brandy 50 72 90 99 2095 Roasted coffee 64 79 91 97 2074 Cottonseed oil mill products 42 55 74 96 2032 Canned specialities 62 76 89 96 20980 Macaroni, spaghetti and noodles 34 50 74 93 2034 Dehydrated fruits, vegetables & soups 31 50 74 92 2041 Flour & other grain mill products 32 53 76 91 2052 Cookie.?- & crackers 58 67 80 v 91 2047 Dog, cat & other pet food 50 67 81 90 2017 Poultry & egg. processing 23 37 61 86 2037 Frozen fruits & vegetables 28 42 64 86 Canned U cured seafood including soup (except •frozen) 38 71 85 2037 Flavoring extracts & sirups 62 70 76 84 2038 Frozen specialities 36 48 65 82 2023 Condensed & evaporated ' milk 34 52 ' 66 80 499 PERCENT ACCOUNTED FOR BY: 4 LARGEST 8 LARCEST 20 LARCEST 50 LARCEST CLASS OF PRODUCT COMPAN IES COMPANIES COMPANIES COMPANIES 2035 Pickles, sauces & nlad dressings 30 42 ' 57 76 2065 Confectionary produces 32 43 59 75 2022 Cheese, natural & processed 40 51 62 74 20240 Ice cream & Ices 27 37 54 70 2033 Canned fruits & vegetables 18 29 51 69 2011 Meatpacking plants 26 39 53 67 2099 Food preparations 26 36 50 65 2016 Poultry dressing plants 16 25 42 62 2051 Bread, cake & related products 27 37 48 60 2048 Prepared feeds •22 30 42 57 2026 Fluid milk 17 26 41 54 2013 Sausages & other .•prepared meats 16 25 37 53 20860 Bottled & canned / soft drinks 14 20 32 A5 SOURCE: 1972 Census of Manufactures, U.S. Department of Commerce, Bureau of the Census, "Concentration Ratios In Manufacturing" 500 Louis W. Stern, Oriye Agodo, and Fuat A. Firat Territorial Restrictions in Distribution: A Case Analysis Although the Schwinn decision poses problems for management, the soft drink industry's case for special overriding legislation is a weak one. ERRITORIAL restrictions often play an im most part, these industries have continued to use Tportant role in agreements between fran past practices pending final clariiication of the chisors and franchisees. That is, franchisees may issue of territorial restrictions.2 This article as obtain exclusive rights to market the franchisor's sesses the various factors surrounding territorial brand(s) within a given geographical area; these restrictions in the distribution of soft drinks. The rights thereby give the franchisees monopoly po soft drink industry has been isolated for analysis sitions with respect to these brands. From a mar because segments of the industry have been par keting strategy perspective, such restrictions fre ticularly vocal in urging Congress to pass legisla quently make sense, because the franchisor is tion designed to override the Schwinn decision. As more concerned with the ability of his franchisees a result of the assessment presented in this article, to win competitive battles against other brands the authors take a position opposing the use of than he is with their ability to do battle among territorial restrictions in this industry. A similar themselves, thereby cannibalizing one another's analysis to the one presented here can, it is be sales volume. In the early stages of brand de lieved, be applied to other product classes in the velopment and grow'th, such restrictions can be food and beverage industries (e.g., bread and viewed as a needed incentive to secure adequate beer), where such restrictions are prevalent. market penetration vis-a-vis established brands within the same product category. From an anti Major Theoretical Issue trust perspective, however, such restrictions are highly questionable because they are a blatant The primary theoretical issue involved in the means of prohibiting intrabrand competition. legal arguments regarding territorial restrictions Thus, the issue of territorial restrictions provides concerns whether infra brand competition is, from an example of a classic confrontation between a a societal viewpoint, as important as mferbrand marketing strategy that seeks to promote inter- competition. Related to this issue is the question brand competition and antitrust programs that whether restrictions on intrabrand competition seek to promote competition among all brands, should, from an antitrust perspective, be treated including those owned by specific franchisors. as per se violations of the antitrust laws or judged on a rule of reason basis. The position of the U.S. Since the Supreme Court's 1967 decision in the Department of Justice has been that territorial Schwinn case (which found territorial restrictions restriction "inhibits second and third-line com in distribution to be illegal on a per se basis),' petition, unless proven otherwise," which seems many industries have been operating in limbo to indicate that this department would accept with regard to their distribution systems. For the "reasonableness" criteria. Furthermore, the Jus- 1. United Stales v. Arnold, Schwinn & Co.. 388 U.S. 365 '2. The confusion still surrounding (his issue has been de (1967). scribed in James R. Burley. "Territorial Restriction in Dis tribution Systems: Current Legal Developments," JOURNAL Journal of Marketing, Vol. 4Q (April 1976). pp. 69-75. OF MARKETING. Vol. $9 (October (975), pp. 52-56. °Copyright 1976 American Marketing Association All Rights Reserved 501 70 . Journal of Marketing. April 1976 tice Department would probably argue for a rule kctplaces. Thus, from the perspective uf counter of reason approach in situations where firms are vailing power, territorial restrictions may have failing and appear to require territorial protection added appeal to the franchisor wishing to retain in order to survive.3 considerable influence within his distribution Limitations on intrabrand competition have network. been attacked under the Sherman Act, whereas The desire to avoid intrabrand competition and [imitations on interbrand competition have been thus to protect franchisees from one another. attacked under Section 3 of the Clayton Act and combined with the implied desire of franchisors Section 5 of the Federal Trade Commission Act, to retain power in their systems, were probably as well as under the Sherman Act. The history of the motivating forces behind the soft drink indus court decisions related to territorial restrictions try's efforts to obtain legislation that would over has been fully presented by McLaren and by ride the Supreme Court's per se judgment relative Werner;4 therefore it will not be repeated here. to territorial restrictions in the Schwinn case. The What is crucial in this history for our purposes basic public argument of the industry spokesmen however, is the fact that the Supreme Court deci has been that territorial restrictions on intrabrand sion in the Schwinn case left no ambiguity about competition foster more intense interbrand com the illegality of territorial restrictions in situa petition and better customer service than would be tions where products are sold outright to fran the case in the absence of such restrictions. chisees: such restrictions were found to be unlaw ful per se. If title, dominion, and risk do not pass Historical Background of to the franchisee but remain with the franchisor, Soft Drink Distribution the territorial restrictions are, apparently, accept able as long as the franchisor does not engage in To fully understand the issues involved in the allied price-fixing activities with his franchisees.5 soft drink situation, it is useful to review briefly Thus, unless the franchisor decides to enter into the history of distribution in that industry.