The settlement will increase competition in the European carbonated-soft-drink market, where Coke still holds a near-50 per cent share. PepsiCo, which complained to the EU about Coke's sales and marketing practices in the late 1990s, has less than 10 per cent.
PepsiCo has consistently contended that it faces unfair barriers to competition in the market for cola drinks in Europe, where its market share is far smaller than in the United States. The company has complained that rivals have been shut out because shoppers are drawn to the Coke rack without bothering to look at rival offerings elsewhere in the store.
Under the five-year deal, Coke will scrap all rebates that require retailers to buy the same amount of Coke products or more each time. It also will no longer require that a customer who wants to buy best-selling regular Coke or Fanta Orange also take less-popular brands, or offer rebates if they do or reserve shelf space for them.
Coke and three of its main bottlers will be expected to comply with the deal by 1 January 2006.
Coca-Cola however did win some concessions. The EU will allow the company to maintain control over soda fountains for at least two years before retailers have the right to choose another fountain supplier. The new rules apply in all geographic areas where Coke has a 40 per cent market share or has twice the share of its closest competitor.
EU Competition Commissioner Mario Monti said that the aim of the settlement was to let consumers choose what to buy "on the basis of price and personal preferences, rather than pick up a Coca-Cola product because it's the only one on offer." Coke's biggest rival PepsiCo has already applauded the deal, which it believes will create more competition in the €17 billion European soft drink market.
The Commission intends publishing this undertaking under its new antitrust Regulation (EC) No 1/2003 for third-party comments before becoming final.
The settlement brings to a close five years of investigation by the competition directorate of the European Commission into various commercial practices of Coca-Cola and certain Coca-Cola bottlers in Austria, Belgium, Denmark, Germany and Great Britain.
The agreement is likely to apply in 27 EEA countries and in all channels of distribution where the carbonated soft drinks of Coca-Cola account for over 40 per cent of national sales and twice the nearest competitor's share. It will take more than 12 months to fully implement the undertaking and for the market to react to any resulting changes.
This brings to an end one of several recent unpleasant episodes for the soft drinks group. The company has had to deal with a number of difficulties, including the discovery of higher than permitted levels of the chemical bromate in samples of its bottled water brand, Dasani in the UK earlier in the year.
A voluntary withdrawal was undertaken as a precautionary measure. The UK's Food Standards Agency said that although there was no immediate risk to public health, Coca-Cola's decision to stop selling Dasani in Britain was sensible.
And in the US, federal investigators have been investigating Coca-Cola's dealings with Japanese company Takasago International in connection with allegations of channel stuffing. It is alleged that the beverage giant overstated financial results for several years by shipping excessive beverage concentrates to Japan.
Channel-stuffing refers to the practice of convincing clients to accept unwanted or early deliveries of a product. The method is used to pad revenue, and can help a firm meet quarterly financial targets. Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity.
According to a Wall Street Journal report, the Securities and Exchange Commission and the US Attorney's Office are now investigating whether Coca-Cola is guilty of 'channel stuffing' in order to artificially boost profit forecast and sales. The report says that investigators have focused on Douglas Daft, Coca-Cola's chairman and chief executive who announced his plans to retire in February.