During an analyst presentation last Wednesday, Barclays Capital analyst, Simon Hales, asked Nick Blazquez, president for Africa, Turkey, Russia and Eastern Europe for an update on the Mey Içki probe, which was announced in mid February.
(When it agreed its £1.3bn ($1.93bn) takeover of Mey Içki in February 2011, Diageo said its new business had a circa. 70% market share in local spirits, and was the clear market leader in raki, the largest native segment.)
“I can’t really comment when there is a current investigation, except to say that we are co-operating with the authorities and we do not expect that we would have acted in any way inappropriately,” Blazquez said.
Timely, targeted interventions
During a discussion mainly centered on Diageo’s operations in Africa, Blazquez said that the firm’s ‘top 21’ markets all shared similar characteristics in terms of high growth, an emerging middle class and resonance for premium international spirits brands.
Over the past decade Diageo had taken back marketing and distribution rights to its premium spirits brands from third parties in key markets, Blazquez said, “allowing us to make timely targeted interventions to accelerate performance”.
Johnnie Walker was one case in point, Blazquez said, where growth went from flat between 2008 to 2011 to 30%+ growth in each of the last two years, after Diageo took back distribution control.
“Interestingly, as the Mey business took over the distribution of the Johnnie Walker brand, since that has occurred leveraging Mey’s scale we’ve seen really significant growth of Johnnie Walker in Turkey which is somewhat similar to us leveraging our beer distribution for Johnnie Walker across Africa.”
The Turkish Competition Authority (Rekabet Kurumu) announced in mid-February that it had launched a preliminary investigation in response to a complaint application (from an unnamed party) that Mey Icki had “prevented the sales of competing products at points of sale”.
Obstruction of rival operations alleged
The firm also stands accused of making use of exclusivity to the advantage of its own product and obstructing the operations of competitors, which, if true, would mean Diageo had breached two articles within Turkey’s Protection of Competition act.
“After examining the information, evidence and findings gathered in the preliminary enquiry in its meeting of February 14 2013, the board concluded that an investigation should be initiated concerning Mey Icki.”
The competition board will address specific claims that Mey Icki violated Article 4 of the Protection of Competition Act through practices aiming at or resulting in exclusivity at final points of sale.
Possible abuse of a dominant market position (under Article 6) through practices aimed excluding competitors from markets and/or foreclosing the markets to competitors.
Article 4 of Act 4054 forbids anti-competitive agreements and concerted practices between undertakings, while article 6 prohibits abuse of a dominant position.