COMMISSION DECISION of 11 March 1998 relating to a proceeding under Articles 85 and 86 of the EC Treaty (Case Nos IV/34.073, IV/34.395 and IV/35.436 Van den Bergh Foods Limited) (notified under document number C(1998) 292) (Only the English text is authentic) (98/531/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation No 17 of 6 February 1962, first Regulation implementing Articles 85 and 86 of the Treaty (1), as last amended by the Act of Accession of Austria, Finland and Sweden, and in particular Article 3(1) thereof,

Having regard to the applications lodged under Article 3(2) of Regulation No 17 by Masterfoods Limited and Valley Ice Cream (Ireland) Limited against Van den Bergh Foods Limited, formerly HB Ice Cream Limited, alleging that they are being hindered, in restraint of competition, in selling their ice-cream products in Ireland,

Having regard to the Commission Decision of 29 July 1993 to initiate proceedings in this case,

Having regard to the application for negative clearance/exemption lodged pursuant to Article 4(1) of Regulation No 17 by Van den Bergh Foods Ltd on 9 March 1995 for its distribution arrangements for impulse ice-cream products in Ireland,

Having given the undertaking concerned, pursuant to Article 19(1) of Regulation No 17 in conjunction with Commission Regulation No 99/63/EEC of 25 July 1963 on the hearings provided for in Article 19(1) and (2) of Council Regulation No 17 (2), the opportunity of being heard on the matters to which the Commission has taken objection,

Having consulted the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

I. INTRODUCTION

(1) This Decision relates to the arrangements by Van den Bergh Foods Limited, formerly known as HB Ice Cream Limited, (hereinafter 'HB`) for the distribution of its impulse ice-cream products in Ireland. HB pursues a policy under which it makes freezer cabinets available to retail outlets stocking its ice-cream products on the basis of cabinet exclusivity.

(2) On 18 September 1991, Master Foods Limited, trading as Mars Ireland, (hereinafter 'Mars`) lodged with the Commission a complaint (3) under Article 3 of Regulation No 17 against HB, in respect of the latter's provision to a large number of retailers of freezer cabinets on the basis of cabinet exclusivity. Mars claims that it is being hindered, in restraint of competition, from gaining access to retail outlets for the sale of its impulse ice-cream products in Ireland by reason of this practice.

(3) Mars entered the Irish ice-cream market in 1989. In April 1990, the Irish High Court granted an interlocutory injunction to HB which prevented Mars products from being placed in HB freezer cabinets. In May 1992, the High Court (4) granted HB a permanent order restraining Mars from inducing retailers to store its ice-cream products in HB's cabinets. The court further held that HB's policy of freezer exclusivity was not caught by the prohibition contained in Article 85(1). It also found that Article 86 had not been infringed, either by HB's exclusivity or by its pricing policies. The court did, however, consider that HB held a dominant position on the Irish impulse ice-cream market. Mars has appealed against these judgments to the Irish Supreme Court.

(4) On 22 July 1992, Valley Ice Cream (Ireland) Limited ('Valley`) lodged with the Commission a complaint (5), against HB similar in terms to the Mars complaint. Valley was a manufacturer of ice cream in Ireland, but went into liquidation in 1997. It had, until shortly before that, been acting as principal distributor for Mars ice-cream products in Ireland.

(5) On 29 July 1993, the Commission provisionally concluded that the system of distribution at that time operated by HB infringed both Article 85 and Article 86, addressing a Statement of Objections against HB to that effect. HB contested the Commission's view of the legality of its distribution arrangements.

(6) In its Statement of Objections, the Commission did accept that HB's arrangements bring about some improvement in distribution, but found that this was outweighed by the harmful effects of restricted competition. It was none the less made clear that HB remained at liberty to propose an alteration to its distribution arrangements for impulse ice cream in Ireland which might be capable of qualifying for an exemption pursuant to Article 85(3). While maintaining its view as to the legality of its current distribution arrangements, and following discussions with the Commission, HB came forward with such proposals. On 8 March 1995, these were notified to the Commission (6), which then issued a statement (7) expressing the prima facie view that the changes would merit exemption.

(7) On the basis of these proposals and in the light of HB's expressed expectations regarding their effects in the market, on 15 August 1995 (8) the Commission announced its intention to take a favourable view towards HB's distribution arrangements as notified. The changes did not, however, achieve the expected results in terms of opened outlets. In view of this and of the situation as it currently stands in the market, the Commission has revised its expressed intention (see paragraph 247 et seq.). Accordingly, on 22 January 1997 the Commission sent a new Statement of Objections to HB. HB submitted its written response thereto on 24 April 1997, and put forward its arguments at an oral hearing held on 11 June 1997.

II. THE FACTS

1. The product

(i) Ice cream generally

(8) The essential raw materials for the production of ice cream include milk (including skimmed milk), fat (milk or vegetable) and sugar. Other additions may include, inter alia, emulsifying and stabilising agents, colouring and flavouring substances, nuts, chocolate, and fruit concentrate. Legislation concerning product definition, labelling, and permitted contents (air coefficient etc.) varies somewhat between the different Member States. The contents of frozen yoghurt, 'water ices`/'ice pops` (water-based products) and 'soft`/'whipped` ice cream (which is made with vegetable fat and has no dairy content) differ substantially from ice-cream products generally.

(9) Ice-cream products must be kept at a low temperature during all stages of production and distribution before ultimate consumption. An exception to this is soft ice cream which is delivered to a retailer in the form of an ambient soft mix (sold to retailers either as a 'fresh` or 'sterile` product), and is only transformed into a final product by being processed through special dispensing equipment on the retailer's premises.

(10) Ice cream can be categorised according to how it is manufactured and distributed. A distinction is usually made between 'artisan` ice cream on the one hand, which is generally produced, distributed and consumed locally on a small scale, and industrial ice cream on the other, which is produced for wide-scale distribution. Almost all of the ice cream produced and sold in Ireland is of the industrial kind.

(11) Ice cream can also be categorised according to where it is intended to be consumed. This generally includes three categories:

- 'impulse` ice cream, consisting of single-wrapped items (often stick products), and individual portions of 'scooped` ice cream, designed for immediate consumption at or near the place of purchase,

- 'take-home` ice cream, including multipacks of single items, blocks, tubs, dessert products and so on, intended for consumption at home,

- catering ice cream, which is sold in bulk to hotels, restaurants, cafés, etc., for consumption, as part of a catering service, in those places.

(ii) Impulse ice cream

(12) Single-wrapped items of impulse ice cream are generally stored in self-service freezer cabinets installed in or just outside the retailer's premises. The cabinets are usually prominently positioned. As with all products relying on impulse purchasing decisions, availability and visibility at point of sale are important factors in the sale of impulse ice cream. If the product is not available or visible, that is a sales opportunity which may be permanently lost (9), consumers of impulse ice cream will in general not travel to buy, or defer a purchasing decision. Access to wide-scale distribution is particularly crucial for the sampling by consumers of new products, thereby stimulating demand for those products. Single-wrapped impulse ice-cream products are almost invariably branded products, supported by considerable investment in advertising and other promotional activity.

(13) Seasonal factors have a considerable effect on the consumption of impulse ice cream, with most sales being made during the summer months. In 1992, for example, approximately two thirds of HB's impulse sales were made in the four-month period from May to August. Sales also depend to a substantial degree on the weather.

(14) While children are particularly important as purchasers of single item ice-cream products, the trend in new industrial impulse lines is towards 'premium` or 'super premium` items (terms generally denoting products with a high dairy fat content and a low proportion of air), which appeal primarily to adult consumers. These are more highly priced products aimed at a wider market which includes adults, and represent the fastest growing segment of the impulse market.

(15) Scooping ice cream is delivered in bulk form to the retailer, who generally stores it in a specially-designed freezer cabinet and serves it to a customer on a cone. In Ireland, scooping ice cream is of only marginal importance in terms of sales.

(16) Soft ice cream is delivered in the form of an ambient soft mix to the retailer, who must then further process the mix by the addition of further ingredients and by the use of special dispensing equipment which transforms it into the low-temperature product which is served to the customer. Soft ice cream is usually served on a wafer cone.

(17) From the manufacturer's point of view, large-scale business in impulse ice cream is capital intensive and involves considerable business risks due to its dependence on unpredictable weather conditions. It requires high levels of working capital in order to finance manufacture in advance of the season and to hold stocks. Considerable logistical and planning demands are imposed on the business over the annual cycle in order to support the relatively short campaign season.

2. The ice-cream market in the Community

(18) Within the Community, Member States' ice-cream markets demonstrate different characteristics. The annual consumption of 'artisan` ice cream, for example, ranges from over six litres per capita in Italy to less than half a litre per capita in Spain, and even less in Ireland. Industrial supply accounts for most of the products sold in Europe. Production of industrial ice cream is highest in the UK and, in descending order, in Germany, Italy and France. Sales of impulse ice cream as a proportion of the total ice-cream market also vary considerably between Member States.

(19) Companies in the Unilever group are the largest ice-cream suppliers in most Member States. In the impulse sector, Unilever companies are the market leaders in every Member State with the exception of Spain, Greece and Finland. The Nestlé, Artic/Beatrice, Grand Metropolitan and Schöller groups all sell ice cream in more than one Member State. Some of these groups of companies. Unilever and Nestlé for example, trade in different Member States under different names.

(20) National legislation on the content of ice cream is not harmonised in the Community. The differences that exist, especially those relating to the permitted types of dairy and vegetable fat, may give rise to material differences in the products available in different Member States and in their cost. Average retail prices for similar and even identical ice-cream products can also vary significantly from one Member State to another. An analysis, however, of the range of products on offer for sale by suppliers operating in several markets shows that similar or identical products are often sold under different product or brand names. There is, moreover, a considerable volume of trade between Member States in ice-cream products.

(21) The practice of supplying freezer cabinets to retailers subject to a condition of exclusivity is widely employed by ice-cream manufacturers and distributors throughout Europe, both by companies of the Unilever group and by many of its competitors.

3. The ice-cream market in Ireland

(i) General

(22) Per capita consumption of ice cream in Ireland is one of the highest in the Community. The total size, in volume and value terms, of industrial ice cream marketed in Ireland is outlined in the table below for 1995 and 1996 (10):

>TABLE>

During the summer of 1995, sales (in particular of impulse products) were boosted by good weather conditions. Comparatively poorer weather conditions during the summer of 1996 explain the relative decline in sales for that year. The total value of the soft ice-cream market (11) in Ireland is estimated by HB as standing at approximately IEP [. . .] (12*) annually.

(ii) HB

(23) HB is Ireland's principal manufacturer and distributor of ice-cream products. The company traces its position as the predominant supplier of ice-cream products in Ireland back to its acquisition in 1968 of the ice-cream business of its principal rival at the time, Premier Dairies (13). It has, since 1974, been a part of the Unilever group of companies. The company was reformed in 1993 as Van den Bergh Foods Ltd, following the merger of HB Ice Cream Limited with other companies in the Unilever group. In 1996, it achieved a turnover of some IEP [. . .]. The corresponding turnover figure for 1995 was IEP [. . .], up from IEP [. . .] in 1994 and IEP [. . .] in 1993.

(24) The multinational Unilever group of companies is one of the world's leading consumer-goods manufacturers. The two parent companies, Unilever NV and Unilever plc, achieved a worldwide consolidated turnover in 1996 of some GBP 33,5 billion. The turnover of the Unilever group in Ireland for the same period amounted to some IEP 231 million. Companies belonging to the Unilever group produce and distribute ice-cream products in all Member States, in most of which Unilever is the market leader. Unilever's policy in the various national ice-cream markets has been to acquire local ice-cream companies and develop brands on a national basis. More recently, however, it has developed some products internationally, notably the highly-successful 'Magnum` stick bar.

(25) HB supplies a complete range of ice-cream products, including a full range of impulse items (including premium products), many of which enjoy very great popularity with consumers. The majority of the products are manufactured in Ireland, but some items are made by other Unilever ice-cream companies and imported by HB. The ice cream is marketed under the 'HB` brand, consumer awareness of which is very high in Ireland. HB also sells ambient soft mix to retailers for transformation by them into soft ice cream.

(26) The total volume of ice cream marketed by HB in Ireland is outlined in the table below (1 000 litres):

>TABLE>

(27) In 1996, HB marketed a total in impulse ice cream, in value terms, of IEP [. . .] at GSV (gross sales value), compared with a marketed total in 1995 of some IEP [. . .], and in 1994 of some IEP [. . .].

(28) HB achieved a share of the market (14), by value, for impulse ice cream in Ireland of about 85 % during the four-month period from June to September of 1996, up from 83 % for the same period in 1995, from 77 % for the summer of 1994 and from 76 % for the summer of 1993. In volume terms, HB's market share in the summer of 1996 amounted to some 85 %, up from 83 % for the same period in 1995, and from 80 % in 1994 and 1993. In the June/July period of 1997, HB's volume share amounted to 89 % and its value share was also 89 %. HB attributes this increase in its market share, at least in part, to the financial difficulties experienced by Valley, and to the termination of the joint-distribution arrangement between Mars and Valley. HB estimates its share of the soft ice-cream market in Ireland as standing at about [. . .] %.

(iii) Other manufacturers

(29) The remainder of the Irish ice-cream market is shared principally between Mars, Valley, Nestlé, Leadmore (Ireland) Ltd (hereinafter 'Leadmore`), Dale Farm Dairy Group Ltd (hereinafter 'Dale Farm`), and Häagen Dazs.

(a) Mars

(30) Mars is a wholly-owned subsidiary of the privately-owned US-multinational Mars Incorporated. As such, it is part of an international group with subsidiaries in most Member States. Mars first entered the ice-cream market when it purchased Dove, a US ice-cream company. Building on the renown of its ambient confectionery brands, Mars developed ice-cream versions of some of those brands, thereby extending them into another product category. Mars manufactures all of its ice cream for the European market at its production facilities in France (Doveurope SA) and uses the same product names in each Member State. It first launched its ice-cream products in Europe in 1988.

(31) Mars began selling its ice cream in Ireland, in single-item form as well as in multipacks, in 1989. The brands' already high recognition among consumers reduced the costs of market launch. The range of ice-cream products offered by Mars is limited to a relatively small number of items, most of which are in the premium (high-price) segment of the market and appeal primarily to adult consumers.

(32) Mars' market share in value terms for impulse ice cream in Ireland during the period from June to September 1996 was about 6 %, down from 7 % for the same period in 1995, and down from about 10 % for the summer of 1994 and 14 % for 1993. Mars' shares in volume terms are somewhat lower, reflecting the premium nature of the range of products which it offers. In the summers of 1995 and 1996, it achieved some 4 %, down from about 6 % in summer 1994, and from 8 % in 1993. In the June/July period of 1997, Mars' volume share amounted to 4 % and its value share was 5 %.

(b) Valley

(33) Until its liquidation in October 1997, Valley supplied a wide range of impulse ice-cream products, though it did not offer products in the premium category. Valley had a history of financial difficulty, including its liquidation and subsequent reconstitution in 1985. It had a market share (value) in the summer of 1996 of about 6 %, compared with a share for 1994 and 1995 of 7 %, and for 1993 of 5 %. Its share in volume terms amounted to about 8 % in 1996, compared to 9 % the previous year. In the June/July period of 1997, Valley's volume share amounted to 3 % and its value share was 2 %. From 1989 until early 1997, Valley was the primary distributor of Mars' impulse ice-cream products.

(c) Nestlé

(34) Nestlé is a multinational company with ice-cream subsidiaries in most Member States. Nestlé entered the Irish market in 1994, and achieved a market share by value and volume of about 2 % in 1995 and 1996, up from about 1 % in 1994. In the June/July period of 1997, Nestlé's volume and value shares both amounted to 2 %.

(d) Häagen Dazs

(35) Häagen Dazs (part of the Grand Metropolitan group of companies) entered the Irish impulse ice-cream market in 1993 with a limited range of premium-priced luxury ice creams. Its share of the impulse ice-cream market is very small and is not separately calculated by Nielsen.

(e) Dale Farm

(36) Dale Farm, a subsidiary of the UK dairy company Northern Foods, is a company primarily based in Northern Ireland and the market leader there; it distributes its ice-cream products via independent franchisees and agents. It secured a 1 % volume and value market share in the summers of 1995 and 1996, up from 0,5 % in 1994. In the June/July period of 1997, Dale Farm's volume and value shares both amounted to 1,5 %. Dale Farm also distributes Mars' products, though these are supplied to it by the UK, rather than the Irish, Mars subsidiary.

(f) Leadmore

(37) Leadmore is a regional producer of ice-cream products. In December 1994, Leadmore Ice Cream Ltd went into receivership. It was purchased as a going concern from the receiver in May 1995 and reconstituted as Leadmore (Ireland) Ltd. Leadmore achieved a value market share of about 0,5 % in the summers of 1995, 1996 and June/July 1997, down from 3 % in the summer of 1994. Leadmore largely operates within a limited geographic area.

(g) Soft-mix suppliers

(38) Apart from HB (see above), the other principal suppliers of soft mix in Ireland are: R& F Martin (trading under the name 'Angelito's`), with an estimated 35 % market share; Pritchards, with an estimated 20 % share; other suppliers include Leepatrick Dairies and Dawn Dairies, with even smaller shares.

4. Distribution channels for impulse ice cream in Ireland

(i) General

(39) In Ireland, industrial impulse ice cream is distributed to consumers through a wide array of retail and other outlets ranging from grocery stores, the 'traditional` retail trade (often referred to as TSNs - tobacconists, sweetshops, newsagents), garage forecourts, and kiosks to places of entertainment and leisure. By far the most important outlets for impulse sales are the traditional retail trade, grocery stores (including symbol/franchise groups) and garages. This is illustrated by AC Nielsen surveys (15) of the ice-cream market in Ireland for the summer of 1992 and April/May 1995 which gave the following breakdown (in value terms) of impulse ice cream sold through the different retail channels:

>TABLE>

(40) The AC Nielsen retail censuses for 1991 and 1994 show the following retail outlet structure for the food and confectionery trade (numbers of outlets):

>TABLE>

(41) As can be seen, the structure has changed little over the three-year period, except for a decline in the number of grocery outlets. Most of these outlets sell impulse ice cream. In 1994, the proportion was 95 %. HB estimates the number of retail outlets selling impulse ice cream as standing (in 1997) at 9 454, on the basis of the AC Nielsen figures.

(42) Multiples (a category of outlets essentially comprising supermarkets) sell principally take-home ice cream, including multipacks, and these are often stored, as are frozen foods, in the retailers' own freezer cabinets. It should also be noted that in some of the smaller grocery outlets in Ireland, impulse and take-home ice-cream products can be sold from the same outlets and even from the same freezer cabinet.

(43) Normal retail outlets clearly have limited space for the siting of freezer cabinets. The outlets which are the most important for the sale of impulse ice cream are generally small in area, and are consequently under particular space constraints. Impulse ice cream is a marginal product for most retailers, in that it will only account for a limited percentage of an outlet's turnover and profits, and competes for sales space with a range of other (impulse and non-impulse) products, many of which have the advantages that their sales are not seasonally variable and so annually may provide higher sales per unit of area (16). According to information provided by HB, ice cream amounts to only 8,5 % in value of total sales in Ireland of 'impulse` products (confectionery, soft drinks, savoury snacks and ice cream). Moreover, the space which is available in an outlet is not all of equal value for the sale of impulse products: prominence of display is crucial (see footnote 9).

(44) Access to distribution is normally measured in terms of: (a) 'unweighted (numeric) distribution`, namely the percentage of outlets offering impulse ice cream, in numeric terms, where a manufacturer's products are available; and (b) 'weighted distribution`, namely the percentage of outlets offering impulse ice cream where a manufacturer's products are available, weighted for turnover in impulse ice cream. Although weighted distribution is generally considered the more important measure of a company's distribution levels, in the case of impulse products numeric distribution is of particular importance: it is the most accurate indication of the widespread availability (and visibility) of the product to consumers. The importance of high levels of numeric distribution is most pronounced where impulse products are being launched in the market for the first time, thereby increasing the chance that consumers will try the product at least once.

(ii) HB

(45) HB ice-cream products are available in each category of distribution channel referred to at paragraph 38. HB sells its impulse ice-cream products to [. . .] customers in total. [. . .] ([. . .] %) of HB's customers have an annual turnover in HB impulse ice cream of less than IEP 1 500.

(46) According to AC Nielsen surveys conducted in Ireland over the last few years, HB achieved about 79 % numeric distribution and 94 % weighted distribution for its impulse ice-cream products in the August/September period of 1995. This means that its products were being sold from 79 % of outlets by number (17), and that HB impulse products were being sold from outlets accounting for 94 % of total impulse ice-cream sales in Ireland. The figures were almost the same in the June/July period of that year, when the weighted share was 95 %. In June/July 1994, the numeric and weighted distribution figures for HB were 78 % and 92 % respectively. In August/September of that year, the figures were 79 % and 93 %. In the June/July period of 1996, HB's numeric distribution was 82 % and its weighted share 96 %; in August/September 1996, the figures remained unchanged, but in June/July 1997, HB's numeric distribution was 85 % and its weighted share 97 %.

(iii) Mars

(47) According to AC Nielsen, Mars achieved about 35 % numeric distribution and 48 % weighted distribution for its impulse ice-cream products in the August/September period of 1995. The figures were the same in the June/July period of that year. In June/July 1994, the numeric and weighted distribution figures for Mars were 36 % and 56 % respectively. In August/September of that year, the figures were 34 % and 52 %. In the June/July period of 1996, Mars' numeric distribution was 32 % and its weighted share 43 %; in August/September 1996, the numeric figure was 31 % and the weighted share remained unchanged. In June/July 1997, its numeric distribution was 30 % and the weighted share 40 %.

(48) Mars estimates (on the basis of a survey carried out by its salesforce at the time) that, prior to the granting of the interlocutory injunction by the Irish High Court in 1990 (subsequently made permanent, see paragraph 3), preventing Mars from inducing retailers to stock Mars ice-cream products in HB cabinets, it had attained a level of some 42 % numeric distribution in the impulse ice-cream market in Ireland. This level was reached within the first few months of the launch of its products in the Irish market and was achieved, in large part, by the placing of Mars products in HB freezer cabinets. Following the injunction, Mars estimates that its level of distribution fell to below 20 %.

(iv) Other manufacturers

(49) Valley achieved numeric distribution in August/September 1995 of 29 % and weighted distribution of 36 % in the same period. In June/July 1995 the figures were 30 % and 37 % respectively. In June/July 1994, they were 28 % and 39 % respectively; in August/September 1994, they were 29 % and 39 % respectively. In the June/July period of 1996, Valley's numeric distribution was 26 % and its weighted share 31 %; in August/September 1996, the weighted figure was 30 % and the numeric share remained unchanged. In June/July 1997, its numeric distribution fell to 20 % and its weighted share to 19 %.

(50) Nestlé achieved numeric distribution in AugustSeptember 1995 of 20 %, and weighted distribution of 25 % in the same period. In June/July 1995 the figures were 20 % and 26 % respectively. In June/July 1994, they were 19 % and 18 % respectively; in August/September 1994, they were 20 % and 19 % respectively. Most of Nestlé's distribution figures in 1994 were accounted for by sales of just one of its range of products, 'Fruit Pastilles`. In the June/July period of 1996, Nestlés numeric distribution was 19 % and its weighted share 24 %; in August/September 1996, the numeric figure was 18 % and the weighted share 25 %. In June/July 1997, its numeric distribution increased to 20 % and its weighted share declined to 21 %.

(51) Dale Farm achieved numeric distribution in August/September 1995 of 11 %, and weighted distribution of 12 % in the same period. In June/July 1995 the figures were 11 % and 11 % respectively. In June/July 1994, they were 5 % and 6 % respectively; in August/September 1994, they were 4 % and 6 % respectively. In the June/July period of 1996, Dale Farm's numeric distribution was 9 % and its weighted share 8 %; in August/September 1996, the numeric figure was 8 % and the weighted share 7 %. In June/July 1997, the numeric share was 11 % and the weighted share 11 %.

(52) Prior to going into receivership at the end of 1994, Leadmore had secured in June/July 1994 a 17 % numeric distribution and a 15 % weighted figure. Its numeric distribution figure in the same period of 1995 was some 10 %. In the June/July period of 1996, Leadmore's numeric distribution was 7 % and its weighted share 6 %. In June/July 1997, the numeric share was at 4 % and the weighted share 7 %.

5. Distribution arrangements for impulse ice cream in Ireland generally

(53) The wide-scale distribution of industrial ice cream requires, among other things, frequent delivery using refrigerated transport from the factory to the sales outlet or catering establishment, which must in turn have cold-storage facilities (usually freezer cabinets) on the premises. A manufacturer of ice cream needs either to build up his own distribution network for frozen products, or to conclude an agreement allowing him access to the distribution network of another ice-cream manufacturer or wholesaler. A distributor needs to be able to ensure frequent 'drops` and to respond to orders at short notice, particularly in summer.

(54) The custom in Ireland has been for manufacturers supplying impulse ice cream to lend freezer cabinets to the retailer free on loan (i.e. with no direct charge) and subject to freezer-cabinet agreements, under which the retailer undertakes that freezers are to be used exclusively for the storage of the supplier's products (cabinet exclusivity); this is illustrated in the market research detailed below (see paragraphs 90 and 91). The supplier usually provides a maintenance service for the freezer cabinets, also free of charge (with no direct charge). Manufacturers often supply most of their products to retailers direct, including via agents, without selling to independent intermediaries; wholesale business in ice cream is small-scale in Ireland.

(55) Until the disposal by HB of a portion of its cabinet fleet in 1996 (see paragraphs 72 and 73), there appear to have been very few retailer-owned cabinets in place in Ireland for the storage and sale of impulse ice-cream products, as is illustrated by the market research outlined at paragraph 85 et seq.

6. HB's distribution arrangements for impulse ice cream in Ireland

(i) General

(56) HB operates a direct distribution system to 80 % of its ice-cream outlets in Ireland. Delivery is made direct to the cabinet, whether it is owned by HB or otherwise. HB has regional depots, from which local delivery in its own fleet of refrigerated vans is carried out. The remaining 20 % of its outlets receive deliveries from eight different local agents who distribute on behalf of HB; the arrangements with these distributors are long-standing and stem from logistical difficulties for HB in otherwise achieving geographical coverage by direct distribution to all outlets. Within the Irish market, HB alone has a nationwide, vertically integrated distribution network.

(57) HB provides turnover-related discounts for purchases of its ice cream (not applicable to soft-mix ice cream). These are given in accordance with a graduated scale ranging from (for 1997) a 2 % discount for purchases of IEP 1 350 to IEP 2 750 to an 11 % discount for purchases of IEP 26 601 or more. The discounts are made available to all retailers of HB ice cream irrespective of the question of cabinet ownership.

(ii) Cabinet provision

(a) HB-exclusive cabinets

(58) HB has for many years made available to retailers freezer cabinets for the storage and display of impulse ice cream at the point of sale (18). The cabinet is either loaned to the retailer with no direct charge (see paragraphs 76 to 79) or leased for a nominal annual rent (IEP 1) which is not collected. The maintenance and repair of the cabinets is also performed by HB. HB does not provide dispensing machinery to retailers for the processing of soft ice cream.

(59) The cabinet is supplied in accordance with a standard form contract concluded between HB on the one hand and the retailer on the other; the main provisions of the cabinet agreement are that:

- HB agrees to make a freezer cabinet available to the retailer; the ownership and property in the cabinet remains that of HB, and HB undertakes to maintain it at its own cost and expense (save where damage is due to the retailer's misuse or neglect of the cabinet),

- the cabinet is to be used exclusively for storing products for sale which are supplied by HB; accordingly no product manufactured or supplied by a third party is to be sold or offered for sale from the freezer cabinet, or stored therein,

- the agreement is terminable at any time by either party giving two months' notice (19),

- the retailer undertakes to keep the cabinet in a prominent position on his premises. Only HB advertising material may be displayed on top of or on the sides of the cabinet.

(60) The number of retailers which whom HB has such cabinet agreements (those supplied subject to a condition as to exclusivity) amounts (in 1997) to 7 907. HB has given a breakdown of its freezer-cabinet agreements as follows:

>TABLE>

(61) HB has at present (in 1997) [. . .] cabinets installed in outlets in Ireland as 'front-of-shop` (20) cabinets. In 1995, HB marketed IEP [. . .] in outlets with HB freezer-cabinet agreements, representing [. . . more than 95 % . . .] of the total impulse ice cream marketed by HB in Ireland in that year (see paragraph 27). In 1994, HB marketed IEP [. . .] in outlets with HB freezer-cabinet agreements, which also represented [. . . more than 95 % . . .] of the total impulse ice cream marketed by HB in Ireland in that year.

(62) It has not been HB's official policy to provide a cabinet to any outlet which offers to stock ice cream. Instead, both financial and trading criteria (21) are applied. The financial criteria are based on the marginal cost to HB involved in taking on a new outlet, coupled with an acceptable return on that investment. This includes an assessment therefore of (a) the net cost to HB of the cabinet, and (b) its variable margin on the associated ice-cream sales through the outlet. The trading criteria are expressed as an annual sales target, based on a minimum estimated turnover in the outlet in question.

(63) Substantial overall economies are achieved where HB, as opposed to individual retailers or even large buying groups, bears the cost of purchasing and maintaining freezer cabinets. As part of the Unilever Group (which buys a very large number of cabinets per year) HB obtains significant discounts for such scale purchases. By means of illustration, HB estimates that the capital cost (including delivery, storage, handling and so on) to a retailer of purchasing a standard 1 m freezer cabinet would be very considerably higher than the capital cost to HB of providing the same cabinet. HB employs its own refrigeration engineers for cabinet maintenance and repair, and also uses the services of local refrigeration companies. During 1994, 1995 and 1996, HB's expenditure on freezer cabinets (including purchase, installation, maintenance, cabinet 'control` and depreciation) amounted to [. . .] %, [. . .] % and [. . .] % of its turnover in impulse ice cream, respectively, for each of the three years.

(64) The importance attributed by the Unilever group of companies to the policy of supplying freezer cabinets subject to exclusivity became particularly evident following the entry of Mars on the European market in the late 1980s. The following extracts (paragraphs 65 to 68) from company documents are an illustration of how crucial Unilever saw the maintenance of freezer exclusivity at that time.

(65) In a Unilever group document dated 3 September 1990 and entitled 'Mars' position in Europe and the FPC (21) response

(21) Frozen products coordination.`, under the heading 'Strategic approach`, one of the points made is '. . . to make every effort to maintain cabinet exclusivity`.

(66) In another FPC document dated April 1989 and entitled 'European ice cream marketing strategy`, reference is made to the importance of freezer exclusivity retaining ownership of the freezer cabinet: 'We must retain ownership of the cabinet, particularly where distribution is performed by third parties, in order to retain, as far as possible through exclusivity contracts, sole brand supply to the fridge, and de facto, to the outlet`.

(67) The 'Minutes of the marketing managers meeting` held in Rotterdam (an FPC document) in November 1989 contain the following statements: 'HB has driven Mars down to 400 HB outlets (4,2 %) from their August peak of 1 920 cabinets (29,7 %) by establishing a Special Task Force . . . In certain cases, they [HB] have been able to buy Mars out of outlets. Diversion to other refrigeration in store and very selective cabinet withdrawal is also being used . . .`; under the heading 'Mars, What next?`, it is stated that, 'To achieve their economies of scale in production Mars needs to achieve significant volume increases. They need to break down the distribution barrier . . . . Denying Mars distribution is the key immediate response to their entry . . .`.

(68) In a Unilever internal strategy document entitled 'Frozen products coordination, Sales Directors Conference, June 1990, Vienna, highlights and follow-up action`, the importance of freezer exclusivity is underlined. Under the heading 'Exclusivity` it is stated: 'We are all too aware that in many countries one of the foundations of our success, EXCLUSIVITY, is now under threat:

- Exclusivity at concessionaire and distributor level,

- Exclusivity in the outlets and cabinets`.

(b) Revision of cabinet policy

(69) In the light of the Commission's Statement of Objections of 29 July 1993 (see paragraph 5), and following discussion with the Commission, HB has revised its distribution arrangements. These have been notified to the Commission, as an application for negative clearance or, failing that, exemption (see paragraph 6). The revised arrangements include the standard-form agreement under which HB continues, on request, to supply HB-exclusive freezer cabinets to retailers as just described (paragraphs 58 and 59), as well as HB's standard conditions of sale and discount schedule (see paragraph 57); these now include a new pricing scheme for its ice-cream products (see paragraphs 76 to 79) and the introduction of a hire-purchase scheme (see paragraphs 70 and 71) designed to facilitate the acquisition of freezer cabinets by retailers.

(70) HB has introduced, as an optional alternative to the acceptance of an HB cabinet under the standard-cabinet agreement, a freezer cabinet hire-purchase scheme designed to enable retainers to buy their own new cabinet. The cabinets are offered at the wholesale price at which HB purchased them, as is evidenced by an invoice from the independent cabinet supplier. Under the scheme, retailers are offered a 1 m 'visi-top` cabinet, available in respect of one cabinet per outlet at any time. Details of the scheme are published on HB price lists and relevant promotional material. Repayment is made over a maximum period of five years; the terms for early repayment without penalty are made clear to the retailer. The credit rate should be the prevailing hire-purchase rate in Ireland (22). The cabinet is to be exclusively used for the stocking of HB products during the period of repayment only. Maintenance is performed by Unilever throughout the repayment period, during which period hire-purchasers will qualify for the differential pricing lump sum (see paragraphs 76 to 79), minus the maintenance element (23).

(71) Unilever informed the Commission that it believed that the scheme would 'prove attractive to retailers and incentivise them to buy their own cabinets`. Since the introduction of the hire-purchase scheme in Ireland in early 1995, not a single retailer has availed himself of the offer.

(72) As a means of achieving a substantial freeing up of outlets in the short term, Unilever undertook to the Commission to ensure the sale of an in situ 'front-of-shop` freezer cabinet with 'a useful remaining life` to retailers in a significant number (some 20 %) of the outlets in which its cabinets were then (December 1994) installed; in total, 1 750 cabinets were to be sold. No more than 400 of such cabinets were to be sold in outlets with an annual turnover in HB impulse ice cream of below IEP 650, and none were to be in outlets with a turnover of less than IEP 400 p.a. in those products. From the moment of sale, a retailer was to be eligible for an annual lump sum under the differential pricing scheme (see paragraphs 76 to 79). Sale was to be made to retailers with current possession of a sole HB cabinet. The price was to be pitched at a level which would ensure achievement of these results. Sale was to be carried out on a 'one-off` basis during 1995 and 1996; sale was to take place equally in 1995 and 1996, and a reasonable geographic spread was to be ensured. The disposal of cabinets was intended to 'kick start` a movement towards freezer cabinet ownership by retailers. Unilever stated that the effect of the measure would be 'to provide, for the 1995 season, a visible and material change to the relevant market. This (would) provide a 'kick start` to the process, the future development of which is underwritten by the dual price structure and the hire-purchase scheme`.

(73) In accordance with this undertaking, HB has disposed of [. . .] cabinets in [. . .] outlets since the beginning of 1995; almost all of these disposals were carried out during the first half of 1996 (24) and [. . .]. According to HB, 1 750 of the disposals comply with the conditions cited in paragraph 72. Almost all of the cabinets disposed of were models and types of cabinet which have not been newly installed by HB in outlets over at least the last [. . .] years. The average age of the cabinets disposed of is just under [. . .] years (25). Not all of the cabinets disposed of had been installed in retail outlets; some ([. . .], according to HB) were installed in schools, staff canteens, swimming pools and the like. Over [. . .] customers acquired more than one cabinet under the disposal scheme. HB concentrated its disposals in what it describes as the 'small-shop sector`. According to HB, the total turnover in impulse ice cream of all those outlets which have acquired cabinets in this way is approximately IEP [. . .].

(c) Recent cabinet installation and product proliferation

(74) In 1994, HB intensified its modernisation of its freezer-cabinet stock, replacing many of the older cabinet models (26). In 1993, [. . .] new cabinets were installed in outlets; in 1994, [. . .]; in 1995, [. . .]; in 1996 to August, [. . .]. In general, the new cabinets take up more floor space in retail outlets (though they are, in some instances, smaller in volume), not only in that they are larger in area but also in that many are 'island-type` cabinets which should not adjoin other store fixtures or the wall of the store. HB talks of changing patterns in its cabinet fleet, which it identifies as the 'increasing popularity of the island cabinet model, largely at the expense of visitop and closed top models`, 'a gradual increase in the proportion of cabinets with a length in excess of 1 m`, and 'a gradual reduction in the overall size of cabinets taking into account length, breadth and height`. According to HB, these patterns are explained by 'two principal factors`: '(i) the decline in the proportion of total outlets represented by TSNs and small independent grocers means that the proportion of the total cabinet fleet represented by the 1 m visitop typical of such outlets has shown a corresponding decrease; and (ii) the introduction by manufacturers of new cabinets designed to be more user friendly for the self-serving customer and, to that end, longer and shallower`.

(75) Mars points out that 'Unilever's general product proliferation, and range expansion has the aim of filling these freezers . . . so that retailers can be persuaded that they have a 'full range` of ice-cream products and therefore have no need to sell competing manufacturers' products`.

(d) Pricing arrangements

(76) Until March 1995, HB supplied its ice-cream products and freezer cabinets at an 'inclusive` price. This price included the capital costs of the cabinet, its maintenance costs and the value of the ice-cream products. All retailers were charged the same price irrespective of the ownership of the cabinets in which the products are stocked. Thus, a retail outlet with its own freezer cabinet paid the same price for HB ice cream as a retailer accepting the offer of an HB freezer. In the 1993 Statement of Objections (see paragraph 5), the Commission reached the provisional conclusion that this pricing policy infringed Article 86 of the EC Treaty in that it discriminated against retailers who had not taken an HB freezer cabinet, but who none the less purchased HB ice cream. The Commission provisionally concluded that the inclusive pricing policy not only served as an inducement to grant exclusivity, to the detriment of competing suppliers of impulse ice cream, but that it also gave rise to discrimination between trading partners, by treating dissimilar situations in a similar fashion. Retailers with their own freezer cabinets effectively paid for a service which they did not receive and, in so doing, were forced to subsidise cabinet provision to those taking HB cabinets; the former retailers thereby placed themselves at a competitive disadvantage vis-à-vis the latter ones.

(77) In view of the Commission's objection, HB abandoned the policy of 'inclusive pricing` in 1995, and introduced a 'differential` or 'dual` pricing scheme. The scheme allows for the payment of a lump sum to retailers stocking HB ice cream but not taking an HB freezer cabinet, provided that retailer achieves a minimum annual turnover in HB ice cream (sales from the outlet) of IEP 650 GSV (gross sales value). This lump sum is currently set at IEP 78 p.a. and reflects the purchase and maintenance cost savings to HB in not supplying and servicing a standard 1 m cabinet to the retailer. The retail turnover threshold is set at a level which, according to HB, allows it to secure a minimum return on the sale of ice cream to a retailer.

(78) Unilever stated that the new scheme was 'designed to remove any economic incentive on the retailer to take the HB cabinet`. Unilever went on to say that the scheme would 'have a significant effect on the alleged foreclosure of the market, as more retailers realise that the bonus can fund the purchase of their own freezer`.

(79) The scheme has been operational since the beginning of 1995 and its terms are published on HB price lists; for 1995, retailers holding their own cabinets for a part year were to receive a part bonus. The lump sum can be periodically adjusted to reflect any changes in HB's costs. Similarly, the turnover threshold may also be varied from time to time. All variations are to be carried out in a transparent manner. In March/April 1996, [. . .] retailers qualified for, and received, the dual pricing bonus relating to 1995 purchases of impulse ice cream from HB. In 1997, [. . .] retailers qualified for, and received, the dual pricing bonus relating to 1996 purchases of impulse ice cream from HB.

7. Other manufacturers' distribution arrangements for impulse ice cream in Ireland

(i) Mars and Valley

(80) In 1989, Mars appointed Valley to distribute its newly developed ice-cream products. Prior to the granting of an injunction against Mars by the Irish High Court in 1991 (see paragraph 3), Mars products had also been placed by some retailers in HB-owned cabinets. Initially, Mars supplied Valley who then supplied the Mars products into Valley or Mars-owned freezer cabinets, as well as into cabinets jointly purchased by Mars and Valley. Mars has, however, been doing some direct distribution since 1993. Following the 1992 High Court judgment rendering permanent the injunction against Mars, Mars and Valley amended their cabinet agreements to make them supplier-exclusive. Mars states that its 'total expenditure on freezers alone in 1994 was 22 % of its turnover in impulse ice cream` in that year. In March 1997, Mars terminated its distribution arrangement with Valley.

(ii) Nestlé

(81) Since Nestlé entered the Irish impulse ice-cream market in 1994, it has been installing freezer cabinets in retail outlets subject to a condition of exclusivity. Nestlé distributes its ice cream in Ireland solely through distributors. On entering the ice-cream market in 1994, Nestlé entered into a cooperation arrangement with Leadmore regarding distribution; this was not continued beyond the first ice-cream season.

(iii) Dale Farm

(82) Dale Farm provides freezer cabinets to retail outlets on free-on-loan terms, for the exclusive storage of Dale Farm ice cream, Mars ice cream and other Northern Foods frozen food products.

(iv) Häagen Dazs

(83) Häagen Dazs installs freezer cabinets in retail outlets for the storage of its impulse and other ice-cream products; the cabinets are mainly small and are subject to a condition of exclusivity. All of its ice-cream products are sold through distributors.

(v) Leadmore

(84) Leadmore supplies freezer cabinets to retail outlets subject to a condition of exclusivity.

8. Market research and quantification of foreclosure

(85) A general point should first be made in relation to market research: there is always a certain margin of error when data are obtained by surveying only a sample, however carefully chosen for its representativeness, of the total market in question. It is, however, the only effective and affordable means of obtaining many kinds of market information. The reliability of such data can, moreover, be significantly enhanced where more than one survey of a particular market tend substantially to corroborate each other's findings, as is the case with the three market research surveys described below.

(86) While HB acknowledges a broad correlation between the results of the Lansdowne and B& A surveys, it criticises the representativeness of the Rosslyn survey for being 'based on revisiting outlets surveyed some five years previously` in a similar survey, which original survey was allegedly 'based on a random sample with no attempt at stratification` according to outlet type and size. The Rosslyn survey, according to HB, is 'disproportionately tilted towards TSNs at the expense of independent grocers`, in contrast with the Lansdowne and B& A surveys, which are stratified in accordance with the Nielsen Universe of outlets. It is also the only one of the three surveys to have been conducted before the disposal by HB of some of its freezer cabinets under the 'kick-start` scheme. The Commission has taken due note of these criticisms in any reliance which it has placed on that survey. The Commission has also noted that the B& A survey is weighted significantly more toward large outlets than the other two surveys.

(i) The Lansdowne survey

(87) The survey was carried out on behalf of the Commission by Lansdowne Market Research Limited in July/August 1996, the height of the ice-cream season. A random sample of 501 outlets was chosen, and it was ensured that this would be representative of the relevant retail trade (27). A geographical spread, including a clear urban/rural divide was ensured. The data was acquired by face-to-face interviews with owners/managers in all outlets. The survey's principal findings are detailed below.

(88) Of all cabinets in the outlets surveyed 84 % were owned by an ice-cream manufacturer/supplier: 61 % of all supplier-provided cabinets were HB-owned (28); 11 % of them were Mars-owned; 9 % were Valley-owned; 8 % were Nestlé-owned; 4 % Dale Farm-owned (29); 2 % Leadmore-owned; 1 % Häagen Dazs-owned.

(89) Of all cabinets 12 % were found to be retailer-owned; 2 % were on hire purchase from an ice-cream manufacturer; 1 % were owned by a retail group. 38 % of retailer-owned cabinets were purchased from HB or HB agents.

(90) The proportion of outlets with only one freezer cabinet for impulse ice cream was 58 %; the proportion with two such freezers was 35 %; the proportion with three or more was 7 %. The average (mean) number of cabinets per outlet was 1,50.

(91) Of all outlets selling impulse ice cream 85 % had at least one supplier-provided cabinet; 72 % (30) had at least one HB cabinet; 14 % had at least one Mars cabinet; 10 % Nestlé; 10 % Valley; 5 % (31) Dale Farm; 2 % Leadmore; 1 % Häagen Dazs; 5 % other suppliers. Of all outlets 17 % had at least one cabinet owned by the retailer himself.

(92) Of all outlets 56 % had a cabinet, or cabinets, from one manufacturer/supplier only (and are consequently only in a position to sell the ice-cream products of that single manufacturersupplier); 27 % had cabinets owned by more than one manufacturer/supplier (and no retailer-owned cabinets): consequently, 83 % of all outlets have only manufacturer/supplier-provided cabinets; 17 % of all outlets had at least one cabinet owned by the retailer himself, this 17 % being composed of 12 % of all outlets which only have a retailer-owned cabinet and 5 % of all outlets which have a retailer-owned cabinet/s, as well as a manufacturer/supplier-owned cabinet/s.

(93) This information was also broken down according to the turnover of each outlet surveyed in impulse ice cream. There were three categories: (i) outlets with a turnover of under IEP 1 000 (22 % of the outlets), (ii) outlets with a turnover of between IEP 1 000 and IEP 2 000 (23 % of the outlets), and (iii) outlets with a turnover of IEP 2 000 or more (40 % of the outlets) (32). 28 % of outlets in category (i) had at least one cabinet owned by the retailer himself (22 % only had a retailer-owned cabinet/s, 6 % had a retailer-owned cabinet/s as well as a manufacturer-supplier-owned cabinet/s); 19 % of outlets in category (ii) had at least one cabinet owned by the retailer himself (15 % only had a retailer-owned cabinet/s, 4 % had a retailer-owned cabinet/s as well as a manufacturersupplier-owned cabinet/s); however, only 10 % of outlets in category (iii) had at least one cabinet owned by the retailer himself (4 % only had a retailer-owned cabinet/s, 6 % had a retailer-owned cabinet/s as well as a manufacturer/supplier-owned cabinet/s). 58 % of outlets in categories (i) and (ii) had a cabinet/s from one manufacturer/supplier only (and are consequently only in a position to sell the ice-cream products of that single manufacturer/supplier); 53 % of outlets in category (iii) are only in a position to sell the ice-cream products of that single manufacturersupplier.

(94) 95 % of HB cabinets are set up in outlets which have only got manufacturer-supplied cabinets; 58 % of HB's cabinets are in outlets where only HB's cabinets are in place. The level of sales of impulse ice cream in outlets in the latter category of outlet is almost identical to that in any outlets with HB cabinets.

(95) 47 % of all outlets are only in a position to sell the ice-cream products of a single manufacturersupplier, with a single cabinet only in each outlet; 8 % are only in a position to sell the ice-cream products of a single manufacturer/supplier, with only two cabinets. 41 % of all outlets are only in a position to sell the ice-cream products of HB, 35 % of all outlets are only in a position to sell the ice-cream products of HB, with one HB cabinet only, 6 % with two or more HB cabinets only. 15 % of outlets are only in a position to sell the ice-cream products of a single manufacturersupplier other than HB. None of these other brands is significant in terms of the number of outlets tied to the sale of its products alone.

(96) The average age of the cabinets surveyed was 3,02 years; for retailer-owned cabinets, the average age was 4,59 years; for HB cabinets, it was 2,92; for Mars cabinets, 2,06; for Valley cabinets, 3,53; for Nestlé cabinets, 1,65. Retailers were unable to date one in six of the cabinets surveyed.

(97) When retailers were asked if it would be a 'viable option` for them to use up further space to install another freezer cabinet for impulse ice cream, 87 % of all outlets said that it would not; 11 % said that it would. Of all outlets 53 % considered that one freezer cabinet would be the optimal number of cabinets to have in the store during the summer (ice cream) season; 36 % said two would be optimal; 8 % said three; 1 % four or more. The average optimal number was 1,57. Lansdowne have commented that 'it is evident that the number of ice-cream cabinets currently in place in retail outlets around the country is perceived as approaching the maximum viable`.

(98) Of the cabinets surveyed 97 % were permanently in place in the store (i.e. they had not just been brought in for the summer season). Of all outlets 87 % said that they never placed additional cabinets in the store in order to cope with the increased demand during the summer; 6 % said they sometimes did; a further 6 % said they always did.

(99) Of all cabinets surveyed 90 % are used exclusively for ice-cream storage (50 % are only used for storing impulse products, 40 % for storing both impulse and non-impulse products); 94 % of all manufacturer-owned cabinets surveyed are used exclusively for ice-cream storage (54 % are only used for storing impulse products, 40 % for storing both impulse and non-impulse products); however only 67 % of all retailer-owned cabinets surveyed are used exclusively for ice-cream storage (26 % are only used for storing impulse products, 41 % for storing both impulse and non-impulse products, 34 % for storing both ice cream and non-ice-cream products).

(100) Those retailers who did not own a freezer cabinet were asked for their reasons for not owning such cabinets: 54 % indicated that it did not make commercial sense; 25 % that the cost was prohibitive; 9 % said they only had demand for one brand of ice cream; 4 % said it was inconvenient.

(101) All retailers who did not own a freezer cabinet or were not hire purchasing a freezer from HB were asked if HB's hire purchase offer interested them. 8 % said it did, while 78 % were not interested by it. 54 % said they were not at all interested; 24 % said they were not very interested; 5 % were indifferent; 6 % were quite interested; 2 % very interested. The overwhelming reason cited for this lack of interest was contentment with current freezer cabinet arrangements.

(102) All outlets only in a position to sell the ice-cream products of HB were asked if there was demand for brands other than HB: 53 % responded that there was no demand; 40 % that there was demand (31 % reported a little demand, 9 % a big demand). The same category of outlets was further asked if they were interested in stocking brands other than HB: 62 % (33) said they were not interested (32 % (34) not at all interested, 30 % (35) not very interested); 9 % were indifferent; 25 % (36) were interested (17 % (37) quite interested, 8 % (38) very interested).

(103) Of those interested in stocking brands other than HB (25 % of 41 % of all outlets, hence 10 % of all outlets), 53 % said they would not be prepared to install an additional cabinet for the storage of such brands; 40 % said they would be prepared to do so. Almost all of those not prepared cited space constraints as the main reason. A majority of those prepared to install a further cabinet expressed a preference for a supplier-exclusive one.

(104) Those interested in stocking brands other than HB were also asked if they would be prepared to replace or exchange ('swap`) one of their existing HB cabinets with one from another ice-cream supplier: 82 % said they were not prepared to do so; 11 % said they were. The principal reasons cited for this unwillingness to replace HB cabinets were the popularity and leadership position of HB and contentment with the present arrangement. The same group were further asked if they would be prepared to replace or exchange one of their existing HB cabinets with a cabinet hired or purchased by the retailer himself: 76 % said they would not be prepared to do so; 18 % said they would. Happiness with the current arrangement and cost considerations were the principal reasons given for the lack of preparedness. Finally, the same group was asked if they would be prepared to exchange an HB cabinet for two smaller ones, one not owned by HB: 49 % said no; 44 % yes.

(ii) The Rosslyn survey

(105) Mars also commissioned a survey of the Irish impulse ice-cream market. The survey was carried out by the London-based firm Rosslyn Research Ltd (39), though the fieldwork was done by the locally-based Irish Marketing Surveys. The Rosslyn survey covers 408 outlets spread geographically throughout Ireland, and with a spread of outlet size and type. Some of the Rosslyn survey's main findings are outlined below, together with some comparative figures from the Rosslyn survey of 1991. On the basis of the results yielded by this survey, Mars further commissioned an economic analysis to be carried out, also discussed below.

(106) The proportion of outlets with only one 'front-of store` freezer cabinet for impulse ice cream was 64 % (40); the proportion with two such freezers was 31 % (41); the proportion with three or more was 4 % (42). The average (mean) number of cabinets per outlet was 1,42 (43).

(107) Of the freezer cabinets 92 % (44) were owned by the manufacturer of the product stocked in it. 6 % (45) of the cabinets were owned by the retailer himself. 64 % (46) of cabinets were owned by HB (47), 14 % (48) by Mars, 4 % by Valley, 2 % by Dale Farm, 1 % by Leadmore.

(108) 50 % of outlets had one HB freezer only; 5 % had two HB freezers only; 2 % had one Mars freezer only; 1 % each had one Valley, Dale Farm and Leadmore freezer only; 14 % had one HB and one Mars freezer; 7 % had an HB freezer and one from any other manufacturer except Mars.

(109) Of the manufacturer-supplied freezers 97 % were on loan from that manufacturer; of these, 99 % were provided free of charge, and 88 % were provided subject to an exclusivity condition (49). Of retailers supplied with freezers by manufacturers 27 % (50) said they would like to stock other manufacturers' products in the freezers (68 % (51) were not interested).

(110) Of retailers with manufacturer-exclusive cabinets 87 % would have to install another freezer if they wished to sell another brand of ice cream; of these, 67 % said they did not 'have room` to do so. Of those who said they did have room, 15 % said they had chosen not to install one because it 'would not be economical in terms of running costs` and 13 % because they had 'better use for the space`; 43 % of those with room said they would be prepared to install another cabinet 'if the demand was high for another product`.

(111) Of those freezer cabinets replaced (returned, exchanged or changed) by another freezer from the same or different ice-cream manufacturer over the previous five years, 78 % of them belonged to HB; 55 % of the freezers were returned, exchanged or changed in order to be replaced by a more modern freezer; a further 25 % of them were returned, exchanged or changed in order to be replaced by a larger freezer; 74 % of the new freezers belong to HB; freezers returned, exchanged or changed were almost invariably replaced by freezers from the same manufacturer - 214 of the 234 freezers replaced were HB freezers replacing HB freezers.

(112) Of all outlets 72 % said they would not be prepared to install a replacement or additional freezer; of those who would be prepared to do so (26 % of the total sample), 82 % would not be prepared to buy a cabinet themselves; 94 % of them would not be prepared to take a cabinet subject to exclusivity on a loan reflecting the costs of cabinet provision; 80 % would not take a non-exclusive cabinet on rent; 84 % would, however, be prepared to take a free on loan cabinet on supplier-exclusive terms. When the same 26 % of the sample were asked if they could install a further cabinet (in addition to another supplier-exclusive one), 77 % said they could not; of these, 51 % cited lack of space and better use of space as reasons, while a further 22 % said it would not be economical in terms of running costs. Of those who said they could (20 % of 26 % of total sample), only 17 % were prepared to do so.

(113) The survey was carried out in mid-April 1996. Only 5 % of retailers had been offered a freezer under the 'kick-start` disposal (see paragraphs 72 and 73). Only 13 % of retailers were aware of the existence of the HB hire-purchase scheme.

(114) The economic analysis was carried out by the firm of economists, Case Associates, and is entitled 'Estimating foreclosure levels in the Irish ice-cream market`. This analysis has drawn a number of conclusions from the survey. The analysis purports, inter alia, to calculate what proportion of all outlets are 'foreclosed` in the sense that a new cabinet would have to be installed in order for a new entrant to be able to sell its ice cream there. It concludes, by one means of calculation, that at least 89 % (52) of all outlets selling impulse ice cream are foreclosed in this way. Using an alternative means of calculation, the analysis arrives at a foreclosure level (in the sense just described) of 84 % (53). Yet another means of calculation puts foreclosure at the higher level of 93 % (54).

(iii) The B& A surveys

(115) HB also commissioned a market survey, which was conducted in August/September 1996 by Behaviour & Attitudes Limited, a market research firm. The results of this survey were contained in HB's written response to the Statement of Objections. The sample for the survey comprised 507 retail outlets, spread geographically throughout Ireland, and with a spread of outlet size and type (55). The survey's principal findings are outlined below.

(116) [. . .] % of outlets surveyed had one cabinet in front of the store, [. . .] % two cabinets, and [. . .] % three or more. HB products were sold from [. . .] % of the outlets surveyed, Mars from [. . .] %, Valley from [. . .] %, Nestlé from [. . .] %, and Häagen Dazs from [. . .] %. [. . .] % of all the outlets surveyed stocked HB ice-cream products together with the products of no other ice-cream manufacturer. HB faces direct competition from other ice-cream brands in [. . .] % of the outlets surveyed, less than[. . .] % of the outlets in which its products are sold.

(117) Of those outlets with only one cabinet, [. . .] % of these were HB cabinets, [. . .] % were Mars cabinets, [. . .] % Valley cabinets, [. . .] % Nestlé cabinets and were [. . .] % retailer cabinets. Of those with two or more cabinets, [. . .] % had at least one HB cabinet, [. . .] % a Mars cabinet, [. . .] % a Valley cabinet, [. . .] % a Nestlé cabinet, [. . .] % a Häagen Dazs cabinet, and [. . .] % a retailer cabinet. [. . .] % of all outlets surveyed had a single HB cabinet alone in front of store.

(118) B& A asked retailers how often they were asked for brands not currently stocked. [. . .] % replied that they were never asked, [. . .] % said rarely, [. . .] % occasionally and [. . .] % frequently. Of those who were at some stage asked for non-stocked brands, [. . .] % took no action, [. . .] % 'added a manufacturer`, and none 'changed manufacturer`. The survey found that, over the previous seven years, [. . .] % of the outlets had at some stage stocked new brands of ice cream, and that [. . .] % of outlets had at some stage de-stocked brands of ice cream; the principal reasons cited for such de-stocking were lack of customer demand ([. . .] %), poor delivery standards ([. . .] %), and poor cabinet maintenance ([. . .] %).

(119) Retailers with only one cabinet in their outlet were asked if they were prepared to install a second cabinet, [. . .] % were not, [. . .] % were, and the remainder did not know. The main reason cited for this absence of preparedness was lack of space. The same outlets were also asked about their preparedness to replace the existing cabinet, [. . .] % were not prepared, [. . .] % were and the remainder did not know. The principal reasons given for such lack of preparedness were satisfaction with the current supplier's product range and cabinet. The same retailers were further asked if they would be prepared to replace the existing freezer with two smaller ones, [. . .] % were not, [. . .] % were and the remainder did not know.

(120) Retailers were asked whether, in the event that manufacturers no longer imposed freezer exclusivity and instead charged a separate cabinet rental, they would stock a wider range as a result. [. . .] % said they would stock a wider range; [. . .] % said they would not; [. . .] % said they would stock the same range; [. . .] % said they would cease stocking altogether. The [. . .] % who expected to stock a wider range were further asked if they would expect to buy/lease a cabinet rather than paying the rental, [. . .] % said they would, [. . .] % that they would not. Finally, the B& A survey registered very high levels of retailer satisfaction with the product range, delivery arrangements and maintenance service of all ice-cream suppliers to the outlets surveyed.

(121) HB also submitted, together with its response to the Statement of Objections, another B& A survey, conducted in 1994, and entitled 'New HB cabinets: the views of retailers`. This survey was conducted with the purpose of obtaining retailers' and consumers' views on newly-installed HB cabinets. The survey was accordingly targeted towards larger outlets and, as such, its usefulness for the purposes of this Decision is somewhat limited. The survey found, inter alia, that HB was rated more highly by retailers than other ice-cream suppliers in terms of its performance under a number of different headings. It also found that retailers were more likely than not to dislike the idea of accepting the installation of two HB cabinets in an outlet, the principal reasons for this being lack of space and cost.

(122) HB furthermore submitted, together with its response to the Statement of Objections, a 'Qualitative study` entitled 'Retailers' stocking policy`, carried out by B& A for HB in March/April 1997 on the basis of 25 interviews. The purpose of the research was 'to gain some qualitative insight into how retailers manage their stores`, though accepting that the findings could only be viewed as 'broad indicators`. These findings include the following.

(123) Most of the interviewed retailers 'do not go so far as to work out profit per square foot calculations`; rather, 'they work to their own instinctive estimate of that calculation`. There was also some concern expressed about the fact that nothing can be stocked above ice-cream cabinets; this means that 'they tend to be placed in the middle of the floor`, which 'obviously leads to some concern about underutilisation of space`. Retailers also indicated that re-stocking a freezer 'more frequently to maximise throughput during the summer months` was preferable to 'putting in extra fridges to cope with peak summer demands for ice cream`. The study also found that 'space reallocation` in order to meet 'changing consumer demands` was 'not on a major scale because the stores themselves are, in the main, relatively small`.

(iv) Other sources

(124) HB estimates (1997) that [. . .] outlets are supplied with one 'front-of-store` freezer cabinet only by HB, that almost [. . .] outlets are supplied with more than one such cabinet and that, of that total of [. . .], approximately [. . .] stock exclusively HB impulse products. On the basis of HB's estimate of [. . .] for the total number of outlets (see paragraph 41), [. . . more than 14 % . . .] of all retail outlets in Ireland are in a position to sell only HB's impulse ice-cream products.

(125) In a paper entitled 'Sales of cabinets in situ` presented to the Commission by HB on 29 November 1994, HB stated that it 'has [. . .] outlets including agents outlets. Of these, [. . .] (or [. . .] %) are shared with other suppliers. Total Universe (Nielsen) is 9 669 outlets`. On this basis, [. . .] outlets (or [. . .] % of HB's outlets) were HB-only outlets at that time; the [. . .] HB-only outlets amounts to [. . . more than 60 % . . .] of all outlets (on the basis of the Nielsen Universe).

9. The ice-cream market in Northern Ireland

(126) The structure of the ice-cream industry in Northern Ireland is substantially different from that in Ireland. Whereas HB is the only Unilever-owned ice-cream producer operating in Ireland, in Northern Ireland both HB and Unilever's United Kingdom ice-cream subsidiary, Walls Ice cream Ltd, are both engaged in the supply of ice cream. Walls handles the multiple trade, while the traditional trade is now principally handled by HB. Dale Farm was until recently the leading supplier of ice-cream products in Northern Ireland (56) but, since 1996, HBWalls have assumed that leadership position. Nevertheless, consumer brand awareness varies considerably between Ireland and Northern Ireland, as is demonstrated by the fact that Dale Farm continues to hold a market share of some 40 % in value terms (in contrast with its negligible share of the Irish market, see paragraph 36); prices for similar products also differ to some extent.

(127) Whereas in Ireland HB usually distributes its ice-cream products direct to retailers, in Northern Ireland it only uses agents to distribute its products. With regard to freezer cabinet arrangements in Northern Ireland, HB charges retailers an annual rent for the loan of its freezer cabinets, and applies a price reduction to products which it supplies to retailers with their own cabinets.

(128) Regulations governing the permitted content of ice cream differ between Ireland and Northern Ireland. In Ireland, ice cream is required to have a minimum butterfat content of 5 % whereas UK legislation contains no such requirement. VAT rates also vary somewhat.

III. LEGAL ASSESSMENT

(129) The object of this legal assessment is to determine whether the arrangements made by HB for the distribution of its impulse ice-cream products in Ireland, whereby it pursues a policy under which it makes available to outlets stocking its products freezer cabinets on the basis of cabinet exclusivity, are compatible with Articles 85 and 86 of the EC Treaty. The assessment of the compatibility with Article 85 of the exclusivity agreements in question is made in the context of the legal and economic circumstances in which they are found (57).

A. ARTICLE 85(1)

1. The relevant market

(i) The relevant product market

(130) The relevant product market includes, in principle, all goods which are perceived by the consumer, on the grounds of their characteristics, price or intended purpose, as being reasonably interchangeable with each other (58). Using these criteria, a distinction should in the first instance be drawn, in accordance with how ice cream is manufactured and distributed, between industrial and 'artisan` ice cream (see paragraph 10); only industrial ice cream is found to any significant extent in Ireland. Secondly, a distinction should be made between the following three ice-cream (59) product categories (60), determined in accordance with the place of consumption: impulse ice cream, take-home ice cream, and catering ice cream (see paragraph 11).

(131) Ice cream which is offered to the consumer as part of catering services forms a distinct product market (61). This market is essentially (62) made up of industrial ice cream for bulk-buying customers, which they may serve, for example, as desserts; value is often added to the ice cream by the caterer.

(132) The inherent nature of the product dictates that the place of consumption is crucial to the determination of the relevant market. Owing to the need for ice cream to be maintained at a low temperature, a consumer purchasing such a product in a retail outlet has in essence two options for consumption of the product: the ice cream purchased by the consumer may either be consumed immediately at or near the place of sale in order to satisfy an impulse, or be stored as soon as possible in a freezer cabinet, probably in the consumer's own home, for consumption at a later time. This distinction on the basis of the consumer's intended purpose in purchasing the ice cream in turn determines the differences in characteristics and price between impulse and take-home products. Take-home products usually take the form of blocks or cakes of ice cream, as well as multipacks of single items, whereas impulse products are invariably offered as single items. It is clear, therefore, that impulse and take-home ice cream form separate and distinct product markets (63).

(133) From the consumer's point of view single wrapped items may be perceived as being reasonably interchangeable with individual portions of scooping ice cream and with soft ice cream. In the case of soft ice cream, this may be a matter of dispute, given the non-dairy nature of its contents. The consumer's point of view is, however, not in every instance the sole criterion in the determination of a product market; nor is an examination limited only to the objective characteristics of the products in question sufficient. The competitive conditions and the structure of supply and demand on the market must also be taken into consideration (64). In the case of impulse ice cream, a further distinction is therefore necessary because of the different conditions applying to the production and distribution of these categories of impulse ice cream. On account of the marginal importance of scooping ice cream in Ireland, its inclusion in the relevant product market does not need to be considered. Soft ice cream, on the other hand, is quite widely sold in Ireland.

(134) Single wrapped items of ice cream are purchased by the retail trade in the form in which they are resold to the consumer. They are specifically designed for consumer self-service (see paragraph 12). In the case of soft ice cream, value is added by the retailer who must further process the ambient soft ice cream mix before the final product can be served to the consumer. The added-value thus created by the retailer is reflected in generally higher trading margins for soft ice cream than in the case of single wrapped items of ice cream. Moreover, soft ice cream requires installations which are different from the freezer cabinets in which single wrapped items of ice cream are stored. For soft ice cream, special processing machinery must be installed in the outlet for the processing and dispensing of the product. The allocation of particular staff (for customer service and maintenance) and space resources are also involved.

(135) As a result of the foregoing differences in the conditions of distribution for soft and wrapped single items of ice cream, the competitive conditions under which they are offered to the retail trade are different and distinct. As regards production, the differing characteristics of the products (soft ice-cream mix as opposed to ice cream) and hence of the technology used in their manufacture provide a further impediment to substitution on the supply side. Wrapped items are, moreover, characterised by a high level of branding whereas, in general, soft ice cream carries no brand. These supply-side differences are illustrated by the fact that the producers of the two categories of ice cream differ (see paragraph 38): only HB produces both types, and even then its share of the market for soft ice cream is much smaller than for wrapped items (see paragraphs 27 and 38). They therefore form separate product markets.

(136) Even if the two categories just described were regarded as forming a single product market, this would not affect the present assessment in any material way. The reason for this is that soft ice cream is of relatively minor importance compared to the value of the impulse ice cream market as a whole. As a result, the positions of the various producers on the market would not be substantially affected. Indeed, of the producers of wrapped items, HB's position would be the least weakened by the addition of its share of the soft market (see paragraph 38).

(137) The competitive conditions in non-retail channels (such as schools, company canteens, sports and leisure venues) often have characteristics which are distinct from those in normal retail outlets, most particularly the fact that the products are in many instances not being sold to the general public but rather to a captive pool of consumers. Considerations such as space management may often be quite different in such venues, and price levels can also vary. Impulse sales via such non-retail venues are, however, relatively insignificant, and it is therefore not necessary to decide whether ice cream sold through such outlets should be excluded from the relevant market. Only 4 %, for example, of HB's cabinet agreements relate to cabinets installed in non-retail outlets of this kind (see paragraph 60).

(138) The product market that is relevant to the present proceeding therefore comprises single wrapped items of impulse ice cream. Hereafter, all references to 'impulse ice cream` shall only include such single wrapped items.

(ii) The relevant geographic market

(139) The objective competitive conditions of supply and demand for impulse ice cream vary considerably in the different parts of the Community. Although the production of industrial ice cream has shown a clear trend towards internationalisation, distribution is still largely organised on a national basis. Distribution arrangements, including freezer-cabinet agreements and analogous contracts granting exclusivity, are concluded at national level; this is also true for Ireland. National peculiarities are reflected in varying market structures, product ranges and prices. Consumer preferences for product types and brands can also vary; this is partly due to the fact that some ice-cream manufacturers operating in several Member States have a policy of using different brand names in different countries (paragraph 20), a clear illustration of the national character of markets. Moreover, the regulations governing the manufacture of ice cream are not harmonised at European level.

(140) In particular, the impulse ice cream market in Ireland differs from that in Northern Ireland in several important respects, as has been described in paragraphs 126, 127 and 128. The conditions of competition are therefore not sufficiently homogeneous for manufacturers and suppliers to treat Ireland and Northern Ireland as constituting a single market. The relevant geographic market is consequently Ireland (65).

(iii) The position of HB on the relevant market

(141) The position of HB on the market for single wrapped items of impulse ice cream in Ireland is one of particular strength, as is exhibited, inter alia, by its market share over many years (see paragraphs 28 and 255 et seq.). This position of strength is further illustrated by the degree of both numeric and weighted distribution enjoyed by HB's impulse products (see paragraph 46), as well as by the strength of the brand and the breadth and popularity of its range of products (see paragraphs 24 and 25). HB's position on the impulse market is further reinforced by the strength of Unilever's position, not only on the other ice cream markets in Ireland (take-home and catering), but also in international ice cream markets and in the markets for frozen foods and consumer products generally.

2. Restriction of competition

(142) HB supplies freezer cabinets to retailers on the basis of standard form cabinet agreements containing provisions requiring the cabinets to be used exclusively for the storing of products for sale which are supplied by HB (see paragraph 56); accordingly, no product manufactured or supplied by a third party is to be sold or offered for sale from those freezer cabinets, or stored therein. These contracts between HB and individual retailers constitute agreements between undertakings within the meaning of Article 85(1). HB has concluded a network of such freezer-cabinet agreements, relating to cabinets installed in outlets throughout the relevant geographic market.

(143) These contractual provisions have as their effect the restriction of the ability of the contracting retailers to stock and offer for sale in their outlets impulse products from competing suppliers, in circumstances where the only freezer cabinet, or cabinets, for the storage of impulse ice cream in place in the outlet has, or have, been provided by HB, where the incumbent HB freezer cabinet/s is/are unlikely to be replaced by a retailer-owned or by a competitor's freezer cabinet/s, and where it is not economically viable to allocate space to the installation of an additional cabinet. This restriction has the consequence that those competing suppliers are precluded from selling their products to those outlets, thereby restricting competition between suppliers in the relevant market.

(144) Having identified the origin of the restriction of competition brought about by the network of HB's cabinet agreements (paragraph 142), and the circumstances in which it produces restrictive effects on retailers and suppliers in the relevant market within the meaning of Article 85(1) (paragraph 143), the existence of these circumstances falls to be demonstrated. In so doing, consideration has not been given to the restrictive effect of each individual cabinet agreement, but rather to the effect produced by the category of agreements fulfilling the stated conditions and constituting an identifiable part of the network of HB's cabinet agreements as a whole (66); the assessment of the restrictive effect of that part of HB's network then applies equally to each of the agreements comprising that part (67).

(145) The assessment of this restrictive effect has been made against the background of the effect of all similar networks of freezer-cabinet agreements operated by the other ice-cream suppliers in the relevant market, as well as in the light of any further relevant market conditions. The restrictive effect has moreover been quantified so as to demonstrate its appreciable nature.

3. Outlet profile

(146) In determining the precise extent to which Article 85(1) applies to HB's cabinet agreements, it is first necessary to analyse the outlet profile in order to identify those outlets in which only an HB cabinet/s is/are found.

(147) Networks of supplier-exclusive cabinet agreements (that is, agreements whereby a cabinet is provided by a supplier on condition that only products supplied by him may be stored therein) clearly have the effect of restricting the ability of retailers to stock and sell the impulse ice-cream products of a number of competing suppliers. This restriction results from the inevitable space constraints experienced by retail outlets (see paragraph 43). The average number of cabinets in place in outlets has been calculated at 1,5 by the Lansdowne survey and at 1,42 according to the Rosslyn survey, clear illustration of these constraints (see paragraphs 89 and 105). Retailers are, moreover, conscious of these constraints, as can be seen from their perception of the optimal number of freezer cabinets to have in place in an outlet at the height of the season: 1,57 (see paragraph 97).

(148) Only a small proportion of retail outlets in Ireland contains non-exclusive cabinets (68): these can be referred to as 'open` outlets, in the sense that retailers are free to stock the impulse ice cream of any supplier. The Lansdowne survey, conducted in July 1996 (69), found (see paragraph 92) that only 17 % of all outlets had retailer-owned cabinets and thus could be described as 'open` in this way, and that the remaining 83 % had only supplier-provided cabinets. In April 1996 (70), the Rosslyn survey found (see paragraph 114) that no more than 11 % of outlets could have in place at least one cabinet which was not supplier-exclusive; only 6 % of all cabinets in the outlets surveyed were retailer-owned. These are the only outlets to which impulse ice-cream suppliers can have direct access, without offering the retailer a freezer cabinet for the storage of the new supplier's products, and without persuading the retailer to accept that offer.

(149) The remaining outlets, without non-exclusive cabinets, contain one or more supplier-exclusive cabinets. The Lansdowne survey found that 83 % of all outlets in the relevant market fell into this category (see paragraph 92). The Rosslyn survey found (see paragraphs 108 and 114) that a total of 84 % of all outlets offering impulse ice cream contain only supplier-exclusive cabinets. These are the outlets to which suppliers whose cabinets are not already set up therein cannot have direct access for the sale of their products without first overcoming the substantial barriers to entry described below. In this way, such newcomers to the outlet are foreclosed therefrom. Although this foreclosure is not absolute, in the sense that the retailer is not contractually precluded from selling other suppliers' products, the outlet can be said to be foreclosed in so far as entry thereto by competing suppliers is rendered very difficult.

(150) It is also clear that most sales of impulse ice cream are made through outlets which have only supplier-exclusive cabinets. This is illustrated, not only by the sheer numerical superiority of such outlets in the relevant market, but also by the much lower proportion of high turnover (in impulse ice cream) outlets which are open in the manner described at paragraph 148: only 10 % of the higher turnover category of outlets are open in this way, in contrast to 28 % of the lower turnover category of outlets (see paragraph 93).

(151) A majority of these foreclosed outlets are, moreover, only in a position to sell the impulse ice-cream products of just one supplier, in the sense that they only have an exclusive cabinet/s provided by one ice-cream supplier: according to Lansdowne, 56 % of all outlets are in this position (see paragraph 92).

(152) The majority of the supplier-provided cabinets in the relevant market have been provided by HB: 61 % of them, according to Lansdowne (see paragraph 88); 64 % of all cabinets, according to Rosslyn (see paragraph 107). According to Lansdowne, 72 % of all outlets have at least one HB cabinet (76 %, according to Rosslyn, see paragraph 108). HB's own estimate (see paragraph 124) is that [. . .] % of all retail outlets in the relevant market have at least one HB cabinet.

(153) The Lansdowne survey also found that 41 % of all outlets are only in a position to sell the impulse ice-cream products of HB, in that they only have a freezer cabinet, or cabinets, provided by HB, 35 % of all outlets having only a single HB cabinet and a further 6 % having more than one. According to Rosslyn, in 50 % (see paragraph 108) of all outlets, an HB cabinet is the only cabinet set up in the outlet; in a further 5 % of all outlets, there is more than one HB cabinet and these are the only cabinets in the outlet: this means that 55 % of the sample of outlets were only in a position to sell the impulse ice-cream products of HB (solus HB stockists) in the sense just described. According to B& A, in [. . .] % ([. . .] % of [. . .] %, see paragraphs 116 and 117) of all outlets, an HB cabinet is the only cabinet in place in the outlet; [. . .] % of the sample of outlets were solus HB stockists in the sense described above (see paragraph 116). [. . . more than 40 % . . .] of all outlets, according to HB's own estimate, are solus HB stockists in this sense (see HB's estimate in November 1994 of [. . . more than 60 % . . .] see paragraph 125).

(154) Almost all of HB's sales of impulse ice cream are made through outlets which have only supplier-exclusive cabinets. This can be seen from the fact that [. . . more than 95 % . . .] of HB's ice cream sales are made through outlets in which HB cabinets are in place (see paragraph 61). Given that only 5 % of all outlets are open and also have a supplier-exclusive cabinet/s (see paragraph 92), and that 95 % of HB cabinets are in place in outlets which have only such supplier-exclusive cabinets (see paragraph 94), the conclusion that almost all of HB's sales are made through such outlets is unavoidable (71).

(155) The Lansdowne survey demonstrates that the level of HB's sales through outlets with only an HB cabinet/s, that is to say, those which are solus HB stockists in the manner described above, is almost identical to the level of impulse ice-cream sales made through other outlets in which HB has provided a freezer cabinet for installation (see paragraph 94). Moreover, HB's levels of numeric and weighted distribution illustrate that the level of sales in the outlets where it is present is generally higher than in those where it is not (see paragraph 46). The level of HB's sales through outlets with only an HB cabinet/s is therefore at least as high as that made through all other outlets in the relevant market.

(156) It can thus be concluded that in some 40 % (72) of all outlets in the relevant market, the only freezer cabinet/s for the storage of impulse ice cream in place in the outlet has/have been provided by HB (see paragraph 153). HB has expressly stated in its response to the Statement of Objections that it does not dispute this conclusion. It has further been demonstrated that some 40 % of all impulse ice cream sales in the relevant market are made through this category of outlets (see paragraph 155). These outlets are solus HB stockists in the sense described above. The agreements relating to the cabinets installed in this category of outlets constitute an identifiable part of HB's network of cabinet agreements.

4. Conditions for finding that the identified part of HB's network of freezer-cabinet agreements produces a restrictive effect on the relevant market

(157) A supplier who wishes to gain access for the sale of his impulse ice-cream products to a retail outlet (that is, a new entrant to the outlet) in which at least one supplier-exclusive freezer cabinet is in place can only do so if that outlet has a non-exclusive cabinet/s (and thus is an open outlet in the sense described at paragraph 148) or if he can persuade the retailer either to replace an in situ supplier-exclusive freezer cabinet or to install an additional freezer cabinet alongside the in situ supplier-exclusive cabinet/s. These two alternatives are discussed at points (i) and (ii) below in relation to the category of outlets identified in paragraph 156.

(i) Likelihood of persuading a retailer to replace an HB freezer cabinet

(158) If a competing supplier wishes to gain access to an outlet in which the only freezer cabinet for the storage of impulse ice cream in place in the outlet has been provided by HB, he may attempt to persuade the retailer to replace one of the HB cabinets with either a cabinet purchased or leased by the retailer himself from a source other than an ice-cream supplier or with a cabinet supplied by the competing supplier (the new entrant to the outlet).

(a) Replacement by retailer's own cabinet

(159) A retailer contemplating the replacement of a supplier-exclusive cabinet will only do so if he expects to increase his profits as a result. In making such a calculation, he must take into account the strength of the position of the incumbent, or incumbents, on the relevant market. A retailer contemplating the replacement of an HB cabinet must therefore take into account the overwhelming strength of HB's position on the relevant market (see paragraph 141). This is particularly so where the HB cabinet is the only one in the outlet: where the retailer envisages replacing this one HB cabinet with his own freezer cabinet, it can be expected that the ice-cream products stocked in the retailer-owned freezer cabinet will in general reflect the respective market shares of the various different manufacturers in the relevant market. Given the strength of HB's position, the range of products offered in the outlet following the replacement is not likely to change to any great extent. The retailer is not therefore likely to envisage that his profits will be much enhanced by the possibility of offering a combination of manufacturers' products.

(160) Nor should the risk-aversion of retailers be discounted as a factor rendering it unlikely that a retailer will choose to acquire his own cabinet: uncertainty about future profits, as well as the general inconvenience of having to acquire and maintain one's own cabinet, amount to not insignificant disincentives, particularly to small retailers. It should be borne in mind that uncertainty concerning future profits is likely to particularly discourage small retailers for whom the risk inherent in such an investment (see below) could have serious consequences and so would be less attractive.

(161) The investment necessary for the purchase of a retailer-owned freezer cabinet, as well as the cost of its maintenance, amounts to a disincentive to retailers who would thereby forego the provision of a cabinet which is provided on 'free on loan` terms, with maintenance assured by the supplier, HB: even though the retailer pays indirectly for the service (see paragraphs 76 to 79), the economies of scale in purchasing, installing and maintaining cabinets which are possible for large-scale ice-cream suppliers such as HB are not available to small retailers and therefore amount to an incentive to accept supplier-provision. Before the introduction of dual pricing in 1995, HB's policy of inclusive pricing (see above) meant that this disincentive was even more marked. As a result of the inclusion of this element in the ice-cream price charged across the board, a retailer with his own cabinet was indirectly financing HB's cabinet fleet without benefiting from the provision of a cabinet. Such an investment is moreover a 'sunk` cost for the retailer if he cannot easily resell the cabinet. Such cost considerations are particularly pertinent in relation to retailers with cash or credit constraints, for whatever reason, and so will be particularly relevant to smaller outlets. The Lansdowne survey found that these commercialcost concerns for retailers were unmistakable disincentives