Bitter claim: Price of your chocolate fix is fixed

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: March 31, 2010 - 7:33 AM

Grocery chains say candy companies are colluding to keep prices high. Chocolate companies say ingredients are expensive.

FILE - In this Feb. 25, 2009 file photo, a Cadbury chocolate bar is seen for sale in a shop in London. Kraft Foods Inc. on Monday, Sept. 7, 2009 proposed a 10.2 billion pound ($16.7 billion) takeover of Cadbury PLC, but the offer was immediately rejected by the British maker of chocolate, gum and candy.

Photo: Kirsty Wigglesworth, Associated Press - Ap

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Supervalu Inc. this week joined a chorus of companies and consumers who claim that your chocolate bar --be it a Snickers or a Hershey -- has been effectively overpriced for years, courtesy of alleged collusion by the world's largest candy makers.

Candy buyers say the highly consolidated candy industry has reacted to stagnant sales and a mature chocolate market by price fixing, accusations that the big confectionery firms have strongly denied and that courts are trying to sort out.

What's certain -- and something to keep in mind during the high chocolate holiday of Easter -- is that chocolate candy prices have been soaring over the past year or so. They climbed about 17 percent during the two-year period ending Feb. 20, with most of that increase coming last year, according to market researcher Nielsen Co.

Eden Prairie-based Supervalu Inc. filed suit Monday in a Pennsylvania federal court, claiming that the Hershey Co., Mars Inc., Nestle USA and Cadbury PLC fixed prices on chocolate candy from 2002 through at least 2008.

Supervalu's suit echoes legal claims made in recent years against chocolate candy makers by some of the nation's largest grocery and snacks retailers -- Kroger, Safeway, Walgreens and CVS Pharmacy. Such antitrust claims by major grocery chains are "very unusual," said Jim Hertel, a managing partner with food retailing consultant Willard Bishop.

Retailers have been joined by consumers, and dozens of class-action suits are pending against candy makers. The litigation-fest began after regulatory inquiries of the chocolatiers in several countries began to surface just over two years ago.

Some of those inquiries continue. Hershey noted last month in its annual report with U.S. securities regulators that it remains the subject of an antitrust investigation by the Canadian Competition Bureau. In the United States, regulators have opened an antitrust inquiry, though haven't requested documents, Hershey's annual report says.

And in Europe, antitrust regulators have been scrutinizing several chocolate makers, though it has closed its file on Hershey.

The Big Four

The global chocolate industry is highly concentrated. Supervalu in its suit claims the four defendants control 76 percent of the U.S. chocolate candy market, with Hershey leading the pack with a 43 percent share and Mars second with 24 percent. While chocolate confectionery is a big U.S. business -- it constituted an estimated $17 billion market last year, according to market researcher Mintel-- it's been a slow-growing one for several years.

Indeed, data from Nielsen show that chocolate candy sales, as measured by volume, actually fell about 7 percent during the two years ending Feb. 20.

In its lawsuit, Supervalu, which operates about 1,500 stores under several names, including Cub Foods locally, claims that beginning in 2002, the chocolate candy makers regularly increased prices, primarily by mid-single to double-digit amounts.

Mars said in an e-mail that Supervalu's claims are without merit, and a Hershey spokesman said the company "doesn't engage in price fixing in the U.S. marketplace." Both companies, as well as Nestle, said they will vigorously defend themselves against collusion allegations.

Price of cocoa beans

A spokeswoman for Cadbury, which is now a part of Kraft Foods, declined to comment on the Supervalu suit but noted that Cadbury's U.S. chocolate products are made by Hershey under a longstanding licensing agreement.

Supervalu said the big candy makers often justified price increases based on their own rising ingredient costs.

But Supervalu claims the price of cocoa beans -- the key ingredient for chocolate -- remained stable from 2003 through 2007. Sugar prices also remained stable, except for a "brief spike" in late 2005 following the hurricane season, the complaint said.

However, sugar and cocoa prices have both been soaring since mid-2009.

Price collusion "is often very difficult to prove," said Tom Cotter, an antitrust expert at the University of Minnesota's School of Law. It's not uncommon for businesses to raise prices at the same time, and "conscious parallelism," isn't a violation of U.S. antitrust law, Cotter said.

To prove collusion, there has to be some sort of oral or written agreement between companies, he said. In its suit, Supervalu, citing public documents from Canada's antitrust inquiry, claims "price fixing communications and exchanges of confidential pricing information were often made at the most senior levels of the companies involved."

Price increases in Canada occurred roughly at the same time and were roughly of the magnitude of price increases in the United States, the suit says. And alleged price fixing in the Canadian market would not have been effective unless similar actions were taken in this country, Supervalu claims.

Mike Hughlett • 612-673-7003

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