Ercüment Erdem Att. Mert Karamustafaoglu

Cards are being redistributed in the Turkish Beer Market

February 2018
“Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.”
Samuel Beckett


Beer is one of the first beverages that humankind produced, such that beer is mentioned even in the epic of Gilgamesh, believed to be circa 2800 and 2500 BC. While the process of becoming human from the primitive human, “Enkidu” who lives with animals and eat herbs is described, it is expressed that Enkidu eats bread and drinks beer. The first large scale brewery in Turkey was Bomonti Brewery that opened in Feriköy, İstanbul in 1890. In 1909, Nektar Brewery was also founded in Istanbul, Büyükdere, as a competitor of Bomonti. The ensuing competition commenced in the beer market, causing both companies loss. Thereupon this loss, Bomonti and Nektar decide to merge, a seemingly wise move. In 1912, they commenced operating under the trademark, “Bomonti-Nektar”. The said company operated as the most important beer producer, for many years; however, with the foundation of the modern Republic of Turkey, it was nationalized in 1934, under the name, “Tekel”.

From the perspective of competition law, the beer market is as colorful as its short history, as summarized, above. In the said market, the sectorial regulations have serious influences on the market structure. Nevertheless, the Competition Board decisions are also some of the most important dynamics in the market. The competition between the two big players of the market, Efes Pazarlama ve Dağıtım Ticaret A.Ş. (“Efes”) and Tuborg Pazarlama A.Ş. (“Tuborg”), have created the most detailed and colorful applications regarding Turkish competition law history.

The reflections of the change in the beer market is seen in competition law practices through the Competition Board decision dated 09.11.2017 and numbered 17-36/583-256. With this decision, Tuborg, who has benefited from the exemption regime, has started to be subject to the same conditions as Efes, as Tuborg’s market share has increased. The individual exemption granted for the exclusive agreements of Tuborg in the closed beer market has been revoked by this decision. Therefore, the possibility of the removal of the exemptions applied in the beer market have arisen in respect of both of the big players.

The Features of the Beer Market Regarding Competition Law

Upon examination of the Competition Board decisions, the market structure and the influence of the regulations of the Tobacco and Alcohol Market Regulatory Authority (TAMRA) are truly effective through the decisions numbered 17-36/583-256. Making the products in the cold beer market available to consumers is important according to the Competition Authority[1]. In this regard, it is important for the producers to have refrigerated coolers present in the points of sale. When producers have more types of products that they can offer cold at the point of sales, they have greater advantage in direct proportion. Therefore, producers have the opportunity thereby to promote their products to consumers. Considering the fact that there is a prohibition on advertising in the said market, having refrigerated coolers in the points of sale is of paramount importance. The Competition Board expresses that especially with the regulations made in 2013, the prohibitions regarding advertisements and sponsorship entered into force and, therefore, the said market passed into the dark market conditions. According to the Board, it is considerably difficult for new undertakings to enter into the market because of the dark market conditions and prohibitions on advertising. Indeed, it is impossible for new players who enter the market to compete with the current producers that are still in the market, and which are known by consumers, without their making any promotions or advertisements.

Furthermore, the Board determined that importation does not constitute sufficiently competitive pressure in the related market. The market shares of the undertakings that operate through importation are low due to the changes in foreign exchange rates, the amount of the special consumption taxes, as well as consumer habits. Moreover, the Board states that Efes and Tuborg, the two biggest producers in the market, have a seriously unutilized capacity.

The Competition Board divides the beer market into two groups regarding points of sale. The closed points of sale (“CPS”) are the points of sale that sell the products to the consumers as closed, such as grocery stores, super markets, or kiosques. Open points of sale (“OPS”) are places, such as hotels, restaurants, or bars where the products are sold to consumers for immediate use, generally with food, music and accommodation services. Various permits are required for the sale of beer in both of these points of sale.

Previous Competition Board Decisions

The Decision of the Competition Board dated 22.04.2005 and numbered 05-27/317-80 (“Decision on Revocation of Exemption”) is related to the exclusivity agreements of Efes and Tuborg that they concluded with CPS and OPS. According to the said Decision, the group exemption provided to both producers’ vertical agreements that include exclusivity, and which are concluded with the said points of sale, is revoked. In this Decision, it is determined that Efes is in the dominant position, that it is difficult to enter into the market as a producer, importation is not at an important level, and there is no sufficient competition in the market. Furthermore, the surplus capacity of Efes and Tuborg, the limitations on advertising in the sector, and the fact that the points of sale are not financially strong, are also taken into account. Hence, in light of these determinations, the group exemptions that had been granted to both Efes and Tuborg’s agreements, including exclusivity, with the points of sale, was revoked.

After almost 3 years from the Decision on Revocation of Exemption, Tuborg applied for exemption again, as it had lost its market shares to Efes. Certain exceptions to the Decision on Revocation of Exemption are stipulated through the Decision of The Competition Board dated 10.04.2008 and numbered 08-28/321-105 (“Cabinet Rule Decision”). However, the most important rule brought by this decision is for CPS with net sales areas of 100 m2 and under; in this regard, if no other alcoholic beverage cooler is available to the consumer, directly, except for the Efes or Tuborg cooler, then the competing products will be allowed to cover up to 20% of the total cooler volume at the point of sale. Thus, Tuborg obtained the opportunity to place its products in Efes coolers at many points of sale.

Nevertheless, in spite of the Cooler Rule Decision, a decrease in the market shares of Tuborg continued. The Competition Board determined, in its Decision dated 18.03.2010 and numbered 10-24/331-119 (“Tuborg Exemption Decision”), that the market shares of Tuborg decreased, the market shares of Efes continued to increase, and the small players in the market pulled out of the market, altogether. For this reason, individual exemption is granted to agreements that include exclusivity, and that will be concluded by Tuborg and its distributors with CPS and the OPS.

In the meantime, there are a great number of Competition Board decisions regarding complaint and exemption applications, including various[2] decisions in relation to the franchise system called “Ekomini” that was carried into effect by Efes. Therefore, this situation indicates that the “quarrel” regarding competition law between the two big players in the beer market, continues to increase. Within this framework, in the Decision dated 03.07.2017 and numbered 17-20/320-142, the Board, on the one hand, rejected the request to grant exemption to the agreements to be concluded between Efes and the CPS, while, on the other hand, upon the request of the same undertaking, it examined the request for revocation of the individual exemption that Tuborg has in the closed beer market.

Decision on Revocation of the CPS Exemption

The Competition Board Decision dated 09.11.2017 and numbered 17-36/583-256 (“Decision on Revocation of the CPS Exemption)was given upon a request made during the exemption application regarding the exclusive agreements that Efes intends to conclude with the CPS; whereas, the exemption request of Efes was rejected, Efes also requested revocation of the individual Exemption of Tuborg that was granted through the Tuborg Exemption Decision. As a result of this examination, the individual exemption that Tuborg benefited from was revoked through the Decision on Revocation of the CPS Exemption.

The Competition Board's said Decision is a first in terms of revoking the previously granted individual exemption to Tuborg. Indeed, contrary to Efes, Tuborg is allowed to conclude exclusivity agreements in the beer sector. Hence, the Decision on Revocation of the CPS exemption is, in a sense, a return from the Tuborg Exemption Decision made in 2010. In this regard, the Competition Board takes into account the changing conditions in the beer market, and the changed position of Tuborg. This attitude of the Competition Board draws attention as a congruent approach to the dynamic structure of competition law.

When the competition law contest between Efes and Tuborg, which is described in detail, above, is observed, one may see that there are two half-times, much like a football match. The first half-time is the period that lasts until 2010, and in which, from the beginning (with the 2005 Decision on Revocation of Exemption), no competition law protection is provided for both players, but then competition law interventions took place for the protection of Tuborg. Various exemption requests by Efes were rejected in the Tuborg Exemption Decision in 2010, but competition law protection is provided through individual exemptions due to the decline in the market shares of Tuborg.

 The second half-time is the period that begins with the Decision on the Revocation of the CPS Exemption, and in which the understanding that Tuborg no longer benefits from competition law protection begins to be dominant. The most characteristic feature of the second-half terms is that the competition between the two players in the market starts to increase. In the near future, commencement of discussions regarding the dominant position of Efes, or the concept of joint dominant position, is on the cards, as well. Furthermore, it is also probable for all of the exemptions to be revoked in the beer market.

Within the framework of the Decision on Revocation of the CPS Exemption, the Competition Board determines that the market share of Tuborg has regularly increased in the last seven years. The Board indicates that the market shares lost by Efes have been obtained by Tuborg, and this has emerged without the exclusivity clauses in the Tuborg CPS agreement. As a matter of fact, pursuant to the sectorial regulations, the agreements with CPS, including exclusivity, are not allowed, in spite of the Competition Board decision. Moreover, the Competition Board considers the fact that Tuborg obtains market shares despite the constriction in the closed beer market, as an indication of obtaining market power by the said undertaking. The Competition Board thoroughly evaluates the increase of Tuborg’s availability rate in the closed beer market starting from 2005, the relative decrease in HHI rates in the said market, and Tuborg’s investments with regard to the CPS.

In the light of these determinations, the Competition Board states that the current market structure is very different from the market structure when the Tuborg Exemption Decision is made, and that Tuborg is in a competitive position with Efes in respect of market share, sales amount, availability rates and financial power. In this scope, the Competition Board revoked the individual exemption granted to Tuborg’s agreements containing exclusivity in the closed beer market.

Conclusion: New Game, New Cards

Beer, which is one of the most ancient beverages that humanity knows, started to be produced by the both Bomonti and Nektar in Turkey. In the progress of time, both companies, instead of being engaged in intense competition, chose to merge their powers through a wise move. This transaction, which can be considered as one of the most undesirable mergers in terms of competition law, caused the removal of the competitive structure in the said market, at the beginning phase.

The Competition Board regularly intervenes in the said market as a result of complaints and exemption applications. Considering the numerous decisions of the Competition Board, which include extensive market analyzes, detailed determinations for open and closed sales points in the market, one may observe that there is a serious struggle between the parties in terms of competition law, as well as two phases that are not unlike a football match. In the first phase, primarily all of the exemptions in the market are revoked, but this situation negatively influences Tuborg’s position in the market. Thereupon, the Board grants Tuborg the right to conclude exclusive agreements. The other player in the market, Efes, has requested exemptions several times; however, the Board has not granted exemptions to the latter.

Nevertheless, the Competition Board signals in a totally different phase through its Decision on Revocation of the CPS Exemption. The increasing market power of Tuborg, which has been “protected” until this time, has caused the loss of this position of the undertaking and its exemption for the CPS. The most important part of this Decision is the determination that places Tuborg is in a competitive position with Efes with regard to market share, sales amounts, availability and financial power. Therefore, in the “second half-time,” placing Efes in the dominant position may no longer be possible. In a similar way, this change may create more than one dominant position, i.e. a joint dominant position. In any case, this market will continue to encompass the possibility to create really interesting and enjoyable competition law applications for a long time to come.

[1] Decision of the Competition Authority dated 09.11.2017 and numbered 17-36/583-256.

[2] The Decision of the Competition Board dated 23.05.2012 and numbered 12-27/795-223 and the Decision of the Competition Board dated 09.10.2013 and numbered 13-57/802-341