Retailers Say Coke, Pepsi Give Cash Inducements to Keep Out Rival

Both companies deny off-the-record claims by restauranteurs, bar owners.

The patrons of Israel’s restaurants, cafes and bars usually face such extensive menus that it is often hard to decide what to order. But, when it comes to the beverage menu, the options are much more restricted, often to just two beverage makers, and many times just one.

Restauranteurs and bar owners who spoke to TheMarker alleged that the lack of choice is often forced on them by the policies of the beverage companies themselves.

They interviews took place a day after reports that the Antitrust Commission was investigating allegations that the Central Bottling Company, which has the local Coca-Cola franchisee, exploited its dominance in the beverage market by forcing retailers that bought its drinks to also buy products from its Tara Dairy division.

Central Bottling Company is one of two bottlers that hold sway over the Israeli beverage market, the other being Tempo Beverages, the local bottler of Pepsi products. Many restaurants will only offer the products of one of the two companies on their menus, meaning that if Coke is served, Pepsi isn’t. Coca-Cola Israel and Tempo are also brewers, so the same rule often applies to beer, limiting the choice at any one restaurant to either Tempo’s Goldstar, Maccabee and Heineken beers or Coca-Cola Israel’s Carlsberg and Tuborg.

Coca-Cola Israel’s product line’s most powerful brands are Coke, Diet Coke and Coca-Cola Zero. While the market share for Tempo’s Pepsi products is much smaller, it has a strong presence with its Goldstar and Heineken beers, which compete with Coca-Cola Israel’s Carlsberg and Tuborg. Coca-Cola Israel also distributes Sprite as well as Neviot mineral water and Prigat juice products, while Tempo’s beverage brands include San Pellegrino and Aqua Nova bottled waters, as well as Jump juice-based products.

The two beverage companies don’t make it official policy to demand exclusivity, but information obtained by TheMarker suggests that they may have found creative ways to make it disadvantageous for restaurants, cafes and bars to carry their rival’s products.

Setting targets

The law bars companies from requiring retailers and restaurants not to carry the competition’s products, but a former employee of Coca-Cola Israel, who was involved in selling beer to bars and restaurants until he left about two years ago, said food establishments are given perks to persuade them to do so. The employee, who asked not to be identified, said this was done by setting sales targets for restaurants and bars to qualify for a discount or bonus. To meet the target would be difficult if a restaurant or bar’s customers could choose the rival’s product.

“Let’s say a business has total beer purchases of about 400,000 shekels ($113,500). So they tell him if he buys 350,000 shekels of our beer, he’ll get an additional discount. It creates a situation where he can buy only from us to get the discount.”

Central Bottling Company denies engaging in any anti-competitive activity. “The company is not familiar with the anonymous claims described in the news report. The company is particularly meticulous about abiding by antitrust provisions, and is unaware of any action on its behalf that involved any kind of deficiency,” a spokesman said.

In 1998, the Central Bottling Company was declared a soft drink monopoly in the cola-flavored carbonated beverage market.

In this particular case, restrictions were imposed on the company that are even more stringent than those normally required of monopolies. It was barred from giving discounts to businesses in exchange for keeping out the competition or conditioning its supplying businesses on their refusing to deal with competing beverage distributors. But it was also more broadly barred from entering into exclusivity agreements.

Business establishments told TheMarker that when it comes to Tempo, it uses similarly creative means to encourage restaurants to carry its beverages exclusively. One fast-food restaurant owner said Tempo even paid him a large sum up front that he would only have to repay if he failed to meet certain sales targets. “What business would refuse a fat check up front?” said the owner, who asked not to be named.

Other business owners noted that although there is no binding exclusivity agreement in writing, the parties have an understanding. “The [beverage] companies are not idiots. They understand how to conduct themselves without opening themselves up to lawsuits,” said a former senior executive at a chain of cafes, who also asked not be named.

In response, Tempo said it “meticulously follows the requirements of the law, including complete compliance with the directives of the Antitrust Commissioner, including those related to business activities with customers.”

Reuters