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. Last Updated: 07/27/2016

Report Faults Coke's Practices

After a 14-month investigation into the business practices of Coca-Cola Co., Italian competition authorities issued a report Friday that accuses the soft-drink giant of using its market dominance to try to drive out smaller competitors, including Pepsico Inc., its chief rival around the world.

The report, a translated copy of which was provided to The New York Times, all but completes the investigation that resulted from complaints made in 1997 and last year by Pepsico and an Italian supermarket chain called Esselunga SpA. A similar inquiry, led by officials of the European Union, is under way in Austria, Denmark and Germany. That investigation, which began July 20 with early-morning raids on Coke offices as well as the offices of its bottlers for those countries, was also prompted by complaints from Pepsico as well as other Coke rivals, including Virgin Cola.

The report describes a plan by Coke that began in 1997 to block Pepsi from new accounts and "to expel Pepsi" from wholesalers handling fountain accounts, among others. The report cites internal documents that detail an "attack plan" against Pepsi in Greece and Italy that were seized from Coke as part of the investigation.

The report cited other issues, including "abusive" discounts offered by Coke in exchange for exclusivity, particularly for fountain accounts; discounts for expanding display areas, and year-end bonuses, which the report said "are only paid if a wholesaler has not distributed products that compete with Coca-Cola in relation to one or more flavors."

The report details how Esselunga, when it wanted to sell Coke products, was told by the soft-drink maker that it had to meet minimum requirements for displays, refrigerator cases and other selling techniques, which Esselunga said would prevent it from making a profit. A decision on whether the company will be fined is expected Dec. 15. The fine could be as high as 10 percent of Coke's revenues in Italy during the period covered by the investigation.

In a statement, a Coca-Cola spokesman said: "We believe Pepsi's poor performance in Italy is due to their lack of commitment and investment there. As a result, they are attempting to compete in the courtroom instead of the marketplace."

Much of the report centers around Coke's practices in the highly lucrative fountain business, which includes soft drinks served at movie theaters, sports arenas, restaurants and other large forums.

At issue is a practice that is common in the United States: offering retailers incentives like discounts for selling large quantities of Coke products. Under European Union law, as well as the laws of some other countries, a company that has a dominant position cannot engage in such practices because they are believed to unfairly inhibit smaller players. Carsten Gromotke, a lawyer in the Frankfurt office of Jones, Day, said Coke clearly was the dominant soft-drink company across Europe, with market shares of at least 40 percent in individual countries. That status means it cannot use price rebates and bonuses for retailers as part of its marketing strategy, he added.

Of particular concern to European Union regulators is the so-called loyalty rebate, Gromotke said. "There is longstanding European case law against this," he said.

"You can't give certain incentives to a customer that precludes them from distributing other products."