Competition Council fines “MAXIMA Latvija” LLC for engaging in unfair trading practices

The CC initiated infringement proceedings against MAXIMA on 25 July 2024, while the infringement period covered by the case spans almost three years – from 1 November 2021 to 7 August 2024.

During the investigation, the CC established that Suppliers lacked alternative sales channels and that cooperation with MAXIMA was essential for maintaining their economic activity, indicating economic dependence on this retailer. Under the Unfair Trading Practices Prohibition Law (UTPPL), MAXIMA is considered a buyer with significant market power, as its turnover exceeds the statutory threshold – in 2024, MAXIMA’s market share reached 28%.

The fact that the Latvian retail market is highly concentrated overall – with approximately 60% of the daily consumer goods retail market controlled by the three largest market participants, including MAXIMA – further increases Suppliers’ dependence on large retailers. Consequently, Suppliers’ “consent” to conditions imposed by retailers is often not a matter of free choice, but rather a necessity in order to avoid adverse consequences for their business operations.

The CC concluded that MAXIMA systematically and over a prolonged period (from 1 November 2021 to 7 August 2024) exploited its market power to unilaterally determine and amend purchase prices for goods by exerting pressure on Suppliers in order to secure purchase prices favourable to itself. At the same time, it was established that the benefit resulting from reduced purchase prices was not passed on to end consumers, i.e. retail prices were not reduced proportionately to reductions in Suppliers’ purchase prices. As a result, the benefit of the reduced purchase prices remained with MAXIMA rather than being transferred to consumers.

Pressure on Suppliers was exercised by exploiting the imbalance in the parties’ relationship, for example by delaying approval of Suppliers’ purchase prices over extended periods, disputing Suppliers’ requests for price increases, or demanding preferred prices in an ultimatum-like manner.

The case identified several instances in which Suppliers requested increases in purchase prices, but MAXIMA failed to approve the prices for periods ranging from approximately three to twelve months. Meanwhile, Suppliers, fearing the loss of this essential sales channel, were compelled to continue supplying goods at the previous prices. The CC concluded that MAXIMA not only rejected Suppliers’ requests, but also demanded even lower prices than those already in force, justifying such demands with vague and general claims, such as references to “market trends” or “lack of competitiveness”.

The CC found that MAXIMA exerted pressure on Suppliers by warning them that failure to comply could result in products being removed from the assortment, orders not being placed, or approved promotions being cancelled. Furthermore, during negotiations regarding purchase prices, MAXIMA manipulated information by relying on unspecified observations and refusing to provide Suppliers with concrete comparative data that would have enabled an equivalent assessment of the justification for the requested price amendments.

According to economic theory, the substantial buyer power of large retailers may create the so-called “waterbed effect” – a situation where lower purchase prices for large retail chains force suppliers to compensate for lost profits by increasing prices for smaller market participants, such as independent stores. As a result, market segmentation emerges whereby small stores pay more than large stores for identical products. Moreover, where Suppliers are continuously pressured to operate with minimal profit margins or even losses in their relationships with major buyers (retailers), their incentives and resources to invest in quality improvements, new product development, and innovation are reduced. In the long term, this negatively affects not only Suppliers, but also retailers themselves and end consumers, as product diversity decreases, innovation slows, and quality deteriorates.

To prevent similar situations in the future, the CC not only imposed a fine of EUR 1,872,805 on MAXIMA, but also imposed the following legal obligations on the company:

• to establish mutually clear, proportionate, and balanced deadlines for negotiations on purchase prices with Suppliers;
• within the contractual deadlines, to assess and respond to Suppliers’ requests for price increases justified by amendments to legislation introducing taxes or equivalent charges directly applicable to specific products (for example, deposit participation fees and similar charges);
• not to demand reductions in purchase prices where a Supplier has requested a price increase, and to provide sufficient justification for price amendments;
• not to take retaliatory measures against other products of a Supplier (blocking, removal from assortment, prolonged failure to order goods, or refusal/cancellation of participation in promotions) if no agreement has been reached regarding the price of a particular assortment item.

Chairwoman of the Competition Council, Ieva Šmite: “Unfair trading practices undermine mutual trust and distort market balance. Retailers have a duty to use their market influence responsibly, because behind every Supplier stand Latvian producers, businesses, and jobs. It is unacceptable for a buyer to exploit its market power in order to increase its competitiveness and generate profits at the expense of Suppliers.

This case is particularly significant because it is the first time the CC has adopted a decision concerning an infringement of the Unfair Trading Practices Prohibition Law, thereby demonstrating the effectiveness of this regulatory framework. At the same time, through this decision the CC has shown that it will not tolerate such unfair practices and has therefore acted with full severity against this retailer. The CC encourages Suppliers to report cases where retailers possessing significant market power impose unfair trading conditions upon them.”

The active involvement of Suppliers and their willingness to report infringements not only helps to prevent specific violations, but also contributes to a fair competitive environment within the food supply chain, where the rights and interests of all parties are respected. Suppliers should remember that their actions are essential not only for their own well-being, but also for the sustainability and development of the entire sector. Every step forward therefore strengthens market fairness and reduces the possibility of unfair trading practices. The CC encourages reporting of unfair trading practices observed in relationships between Suppliers and buyers, including anonymously.