Ruling on case against Dia discount supermarket chain for price setting awaited with concern by franchisers
The Competition Commission’s impending ruling in the case of discount supermarket chain Dia Hellas, which is accused of directly or indirectly setting prices at its franchised outlets, is considered crucial for the future of franchising in Greece. The Commission began its deliberations on June 21 and is expected to complete its hearings on July 11. Officials of companies that have grown through franchising fear that an unfavorable ruling will create major problems for all chains using this mode of operation, as consumers expect all outlets bearing the company name to have the same prices on products for sale. Further, they fear that franchisees will use an unfavorable ruling to launch a wave of compensation claims against the companies. According to sources, the report of the Development Ministry’s general directorate for competition, which is not binding on the Commission, argued that a series of terms contained in the franchising contracts allowed Dia Hellas to dictate resale prices on its franchisees. To begin with, the company dictated the type of cash registers to be used, with a software program «uniform for all company stores and franchise outlets. Changes could not be made without Dia’s prior permission.» Cash registers were linked to the company’s main server to facilitate an exchange of data, such as orders, new products and proposed prices. That is, the ministry’s report argued, «franchisees received price lists which they could not alter.» Such price lists are sent in an electronic file which is installed in the cash registers. The only way a franchisee could alter a price was by changing the rate of value-added tax, in which case the product would appear under the «miscellaneous» category, but this would be an illegal practice. ‘Recommended’ prices The general directorate for competition did not accept Dia’s claim that the listed prices were «recommended.» «If they were, there would have been no need for a franchisee to ask the company for permission to change the retail price, and, besides, according to Dia, the listed prices were part of its philosophy and binding on the franchisees, according to the terms of the contract.» Market sources note that in franchising systems elsewhere in Europe, franchisees operating with systems similar to those of Dia in Greece can change recommended prices without any legal consequences. In its report, the ministry, besides the imposition of a fine, recommends the rewording of the terms which stipulate that «the discount granted by Dia (to the franchisee) is on the predetermined retail sale price of Dia products,» and, «the invoices accompanying franchisees’ orders do not include a recommended retail price.» Such terms, worded in this way, constitute indirect price setting, according to the report. It also recommends that the term «price list» be removed from the contract. Dia pioneered the discount supermarket sector in Greece 10 years ago, and was the first to bring the price of fresh milk down to 84 cents a liter, on its private label. The question arises whether the overturning of its pricing policy to date will enable it to pursue its further growth in Greece.
