Coca Cola Israel Fined Record $17-million in Antitrust Penalty

Investigators allege Central Bottling Company abused Coke’s market lock-hold to oust rival products, committed violations in ice-tea war with Osem.

The Coca-Cola bottling plant in Bnei Brak, Israel.
Nir Keidar

Central Bottling Company, the Israeli franchiser of Coca-Cola, faces a giant 62.7-million-shekel ($17.1-million) fine for abusing the lock-hold Coke has over the local soft drink market, Israel's Antitrust Authority said Wednesday.

Central Bottling has the right to appeal the decision. But if it loses, the penalty it will pay will be by far the biggest ever imposed on an Israeli company.

Antitrust Commissioner Michal Halperin detailed what she alleged was the company’s abuse of the overwhelming dominance of the Israeli cola market by Coke and the ice tea segment by its Fuze Tea brand.

The agency said Central Bottling employees threatened customers who didn’t cooperate with it in pushing competitors’ product aside, and violated specific directives imposed on it by regulators when it was declared a monopoly in the soft-drink sector.

“The policies adopted by the Central Bottling Company and its behavior amount to an abuse of its monopoly status,” the authority said in a statement. “The extent of the alleged violations attributed to Central Bottling is broad and significant.”

Central Bottling Company, a closely held company controlled by the Wertheim family, had released no statement as of press time.

Central Bottling’s products – which include the full line of Coca-Cola drinks, as well as Prigat juices, Neviot bottled water, Carlsberg beer and the Tara dairy products – accounts for about two-thirds of Israeli soft-drink sales. But the company’s dominance varies considerably from product to product: for colas, it controls 90% of sales, and in the ice tea category about 75%.

That overwhelming market share required the company to adhere to certain rules to prevent it from taking advantage, including conditions imposed on it when it acquired Neviot in 2004.

The Antitrust Authority is entitled to impose penalties of up to 24 million shekels, but until now has never imposed one even close to that. The previous record was the tentative 13-million-shekel fine imposed on state-owned Israel Electric Corporation, announced last month.

In Central Bottling’s case, the Antitrust Authority said, the 62.7 million sum is due to multiple violations that it consolidated into four offenses. In addition, company CEO Nir Levinger faces a personal penalty of 340,000 shekels due to his alleged role in formulating and implementing the unlawful policies.

Antitrust investigators, who launched the probe three years ago, allege that Central Bottling used the market power of Coke to force restaurants and food retailers to sell its full line of products, to give a boost to ones that faced tougher competition than Coca-Cola.

The company offered sellers incentives – like free refrigerators, signs and dispensers, as well as discounts on Coke – but only on condition that retailers bought all Central Bottling products and stopped carrying those of competitors.

The discount policy violated a specific antitrust directive that required Central Bottling to put a Chinese wall between discounts it offers on its products. It also violated rules barring it from demanding exclusivity for its drinks from retailers.

But investigators alleged that the company got around this by telling employees never to use the word “exclusivity,” but “complete cooperation” in their dealings with customers.

In addition, the company punished retailers and restaurants that imported Coca-Cola products independently, rather than buying local ones, by cutting off their supply, the authority said – a policy detailed in a 2009 internal memo.

The Antitrust Authority asserted that Central Bottling engaged in particularly egregious behavior during the 2012 breakup of its ice-tea partnership with Osem, a unit of the Swiss food giant Nestle.

As part of a global parting of the ways between Coca-Cola and Nestle over their joint Nestea brand, Cola-Cola (and, in Israel, Central Bottling) got the formula and Nestle (Osem) got the name. That set off an ice-tea war in which the Antitrust Authority alleged that Central Bottling broke the rules.

Central Bottling got a head start, launching its Fuze Tea range in August 2012, before Osem’s reformulated Nestea hit the market that October. Central Bottling offered restaurants incentives to remove Nestea dispensers, and required employees to report back in detail about their success in the effort, the authority charged.