UNITED STATES OF AMERICA
In the Matter of
McCormick & Company, Incorporated, a corporation.
DOCKET NO. C-3939
Pursuant to the provisions of the Federal Trade Commission Act and the Clayton Act and by virtue of the authority vested in it by these Acts, the Federal Trade Commission, having reason to believe that McCormick & Company, Incorporated, a corporation (sometimes referred to as "respondent" or "McCormick"), has violated the provisions of these Acts, and it appearing to the Commission that a proceeding would be in the public interest, hereby issues its complaint, stating its charges as follows:
1. For purposes of this complaint, the following definitions apply:
2. Respondent McCormick & Company, Incorporated., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business at 18 Loveton Circle, Sparks, Maryland 21152.
3. Respondent is now and has been engaged for many years in the production, distribution and sale of spice and seasoning products for resale, including the products that make up its Full Line. Respondent sells these products under the brand names McCormick, Schilling, Fifth Seasons, Spice Classics, Select Seasons, Mojave, Spice Trend, Royal Trading, Crescent, McCormick Schilling, La Cochina De McCormick, McCormick Collection and Old Bay, among others.
4. Respondent has manufacturing facilities in Hunt Valley, Maryland and Salinas, California. The Maryland facility generally serves customers in the Eastern portion of the United States, while the California facility generally serves customers in the West. In the course and conduct of its business, respondent has engaged and is now engaging in commerce, as defined in the Federal Trade Commission Act and the Clayton Act, by selling, distributing, shipping, or causing to be shipped spice and seasoning products produced in some states of the United States to customers located in other states and in the District of Columbia.
5. With 1998 retail sales of $623.7 million in the Americas, respondent is the largest supplier of spice and seasoning products in the United States. Respondent claims to be "the world's largest spice company."
6. Among firms supplying core or gourmet spice lines for sale in supermarkets in the United States, McCormick is by far the leading firm, accounting for the majority of such sales nationally. During the period pertinent to this complaint, McCormick faced competition in such sales from only one other national firm, Burns Philp Food Incorporated, and several much smaller independent regional or local firms. These circumstances, combined with the superior brand recognition of McCormick products, mean that supermarkets that purchase McCormick products have relatively few alternative sources for equivalent products from other suppliers at equivalent prices and terms.
7. During the period pertinent to this complaint, McCormick had a single national price list for its product lines sold to its direct customers, whether retail or wholesale. McCormick commonly referred to this price list as the "A" List. This list specified separate prices for each individual product or SKU. McCormick modified this price list from time to time, to reflect changes in McCormick's costs to manufacture particular products, among other reasons.
8. Relatively few McCormick customers paid the "A" list price. Instead, McCormick commonly entered into written or unwritten supply agreements with customers that provided substantial discounts off the "A" list prices. These discounts have taken a variety of forms, including cash payments at the commencement of the agreement, free goods, off-invoice discounts, cash rebates, performance funds and other financial benefits that effectively reduced the Net Price of McCormick's products. In addition, McCormick supply agreements have included payments for advertising and other promotional activities designed to help customers resell McCormick products. McCormick commonly referred to the aggregate percentage of discounts and benefits provided to a particular customer as the "allowance offer" or "deal rate." McCormick's aggregate discounts and benefits to some customers were substantially greater than to others.
9. Typically, McCormick individually negotiated with particular customers the amount of discounts and promotional payments. The discounts and promotional payments typically were for all or a substantial part of the existing McCormick product line and typically were not incentives to accept new McCormick products.
10. In its supply agreements with customers, McCormick has commonly included provisions that, much as is sometimes seen with slotting allowances, restrict the ability of customers to deal in the products of competing spice suppliers. Such provisions typically demand that the customer allocate the large majority of the space devoted to spice products -- in some cases 90% of all shelf space devoted to packaged spices, herbs, seasonings and flavorings of the kinds offered by McCormick -- to McCormick.
Discrimination in Price
11. Each of the spice and seasoning products that make up McCormick's Full Line is a commodity within the meaning of Section 2(a) of the Robinson-Patman Act amendments to the Clayton Act, 15 U.S.C. § 13(a).
12. In the course and conduct of its business in commerce in the period from at least 1994 to the present, McCormick has in no fewer than five instances discriminated in price by providing different deal rates consisting of preferential up-front "slotting"-type payments or allowances, discounts, rebates, deductions, free goods, or other financial benefits to some purchasers of McCormick products including, but not limited to, McCormick's core spice line, gourmet spice line, dry seasoning mixes and competitive seasonings. In these instances, through such discriminatory terms of sale, McCormick has sold McCormick products to some purchasers (the "favored purchasers") at a lower Net Price than to other purchasers (the "disfavored purchasers").
13. The favorable prices and terms McCormick provided to the favored purchasers were not justified by a good faith attempt to meet the equally low price of a competitor, nor were the favorable prices justified by cost savings associated with doing business with the favored retailer.
14. In each instance, McCormick engaged in contemporaneous sales of McCormick products of like grade and quality to the favored and disfavored purchasers.
15. In each instance, the disfavored purchaser competed with the favored purchaser who resold respondent's products at the same level of distribution.
16. In each instance, at least one of the discriminatory sales by McCormick involved commodities that crossed state lines.
17. Each instance involved a substantial price difference over a substantial period of time between competing purchasers in markets where profit margins are low and competition is keen.
18. In each instance, the disfavored purchaser had few, if any, alternative sources from which to purchase comparable goods at prices and terms equivalent to those McCormick provided to the favored purchaser.
19. The effect of these discriminatory acts and practices has been or may be substantially to lessen competition in the line or lines of commerce in which favored and disfavored purchasers are engaged, or to injure, destroy or prevent competition between favored and disfavored purchasers.
20. The acts and practices of the respondent set forth in Paragraphs 11-19 above constitute unlawful price discrimination in violation of Section 2(a) of the Robinson-Patman Act amendments to the Clayton Act, 15 U.S.C. § 13(a), and unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and will continue in the absence of the relief herein requested.
WHEREFORE, the Federal Trade Commission on this twenty-seventh day of April, 2000 issues its complaint against said respondent.
By the Commission, Commissioner Swindle and Commissioner Leary dissenting.
Donald S. Clark