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C H A P T E R 7 .The case made by Birds Eye

The description of goods269. Birds Eye, making th e case both fo r itself and for the other subsidiariesof Unilever which supply reference goods, argued that frozen foodstuffs asdefined in our terms of reference (see paragraph 1) did not constitute adescription of goods for the purposes of section 6 of the Fair Trading Act 1973.For example, mousse, fish fingers and poultry parts did not become a descriptionof goods because they w ere subject to a freezing process fo r part of their life.TheGovernment could not make things which were not a description of goods intothings which were a description of goods by its mere ipse dixit and by referringthose things to the Monopolies and M ergers Com m ission.Birds Eye's share of the total supply of reference goods

270. Birds Eye ma intained that it was not clearly established tha t Birds Eye orUnilever companies in the aggregate supplied at least a quarter of the reference;goods supplied in the United Kingdom. Birds Eye's criticisms of our estimateof the total supply of reference goods in the United Kingdom and of the shareof Unilever in the total supply are set out in Appendix 1.Birds Eye's market power27 1. Birds Eye argued th at, even if the de finition of frozen foo ds in the termsof reference could be regarded as a description of goods and even if Birds Eyesupplied 25 per cent or more of the reference goods, then Birds Eye wouldnot nece ssarily possess any market power. Because each product falling withinthe reference competed with a different range of frozen and non-frozen products,th e reference goods in no sense comprised a market. The total food marketwas th e most narrowly defined market in which reference goods, taken together,competed. Birds Eye's lack of market power was emphasised by the very lowbarriers to new competition existing in the quick-freezing industry.Birds Eye's profits

f272. Birds Eye pointed out that in 1974 reference goods accounted fo r over95 per cent of its business both by tonnage and by value, and that the volume ofits business in reference goods had risen from 111,000 tons in 1964 to nearly215,000 tons in 1974. In no year had the company made profits of a size whichcould be criticised as excessive. 1966 and 1967 were the only years in wh ich, evenon an historic cost basis, th e company achieved a return on capital employed,before interest and tax, of ov er 20 per cent. Since 1967 Birds Eye's rate of returnon capital had declined substantially, particularly on a replacement cost basis,despite an improvement in the ratio of sales to capital employed.Birds Eye's arrangements with the producers of raw materialsVegetables

273. Birds Eye stated that its contractual arrangements with vegetablegrowers and the terms of those contracts were determined by the conditions ofcultivation and the requirements of Birds Eye for high quality vegetables suitable68


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for freezing. The contracts were advantageous to growers. The arrangementsfor the procurement of vegetables had resulted in improved productivity andquality in vegetable growing, greater stability of arable farming hi the EasternCounties and assured supplies of raw materials, providing high quality frozenvegetables at reasonable consumer prices.F ish

274. Birds Eye stated that its arrangements with th e Fish Producers Organ-isation Ltd to obtain a rebate on its purchases of cod at the H umber ports werea recognition of the benefit to the trawling industry of Birds Eye's uniquelyflexible pattern of purchasing w hich stabilised the m arket, h elped to m aintainth e catching capacity at the Humber ports and reduced th e likelihood of fishhaving to be sold for conversion into fish meal. Birds Eye's flexible purchasingwas made possible by its large filleting capacity which enabled it to buy heavilyon days of heavy landings.275. Birds Eye stated that its decision to b uy fish at Fleetwood had contributedto a revival of fishing at that po rt. Birds Eye's flexible purchasing pattern offeredFleetwood trawler owners advantages similar to those offered to the Humbertrawler owners. Birds Eye regarded its presence at Lowestoft as beneficial tothe fishing industry by providing a guaranteed offtake for widely fluctuating

catches of cod and chat small plaice on terms which were fair to both sides.276. In general, Birds Eye believed its arrangements for the purchase of fishto be positively in the public interest:(a) by contributing to the maintenance of a larger catching capacity andhence a higher level of landings offish, and(b) by making possible a better utilisation of the catch, in particular, byreducing the quantity of fish sold for fish meal on the Humber and atFleetwood and by providing an outlet at Low estoft for the consum ption

of chat small plaice.Arrangements with wholesalers

277. Birds Eye stated that its franchise distribution arrangements whichexcluded w holesalers to the retail trade from ha ndling the smaller sized pac ks ofBirds Eye's competitors did not limit the ability of small suppliers to supply toth e retail trade. In practice Birds Eye did not object to its wholesalers to theretail trade distributing relatively specialist lines produced by other suppliers,but did object to the wholesalers distributing Ross or Findus product ranges.Pricing policyT he l evel o f Birds Eye's p r i c e s

278. Birds Eye contended that th e prices of its products were currently inmost cases lower than those of Findus; this showed that Birds Eye was not asupplier or brand leader charging a premium for its products compared witha closely comparable supplier of frozen foods.69


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Price l eadersh ip279. Birds Eye claimed that it operated in a fully competitive environmentand that its products had to be competitively priced both in comparison with

other reference goods and also with non-frozen foods. Increases in its prices hadbeen due to unavoidable increases in costs. Because Birds Eye was the largestsupplier of frozen foods, its major competitors generally did not choose to raisetheir prices before, or more than, Birds Eye. Because of price control and be-cause th e cost increases affecting Birds Eye had affected other suppliers of frozenfoods to a similar degree, Birds Eye's com petitors had often followed Birds Eyein raising then* prices. Statutory price controls since November 1972 hadresulted in frozen food manufacturers increasing their prices at much the sametime by similar amounts. During th e price freeze between November 1972 andApril 1973 the Ministry of Agriculture, Fisheries and Food authorised priceincreases on an in du stry basis and the operation of the Price C om m ission sinceApril 1973 has encouraged frozen food manufacturers to apply to the PriceCommission for price increases as soon as their costs have increased.

Pricing o f indiv idual products280. Birds Eye argued that th e pricing of different products so as to earndifferent profit margins w as entirely normal and there was nothing against th epublic interest in the practice. Birds Eye stated that its prices w ere set effectivelyby th e prices of alternative food products in the market as a whole. Since th eprices of different products on a per ton basis varied greatly, so the marginsearned on Birds Eye's different produc ts also tended to vary. B irds Eye said thatin 1973 its gross and net profit margins on beans exceeded those on peas and thatmargins on fish fingers exceeded those on fish fillets. The com pany attributed thelower margin on peas to the fact that it had increased the weight of its packs ofpeas w itho ut increasing th eir price in 1972 after an abun dan t harvest. Subsequentpricecontrols had prevented th e restoration of margins. Birds Eye attributed anydifference in margins earned on fish fingers as compared with fish fillets to an

increase in the cost of fresh fish and the greater effect which such an increase hadon th e cost of fillets where th e processor added less to the value than in the caseof fish ringers.

T he pr ic ing o f large a nd smallpacks281. Birds Eye stated that, to increase its turnover and its share of the foodmarket, it offered its products in larger packs at lower unit prices. A lower pricefor large packs was normal in the grocery trade arid w as attributable partly

to the lower unit costs associated with larger pack sizes and partly to lowerprofit margins.

Discounts .; > 2 8 2 . Birds Eye acknowledged that the discounts paid by it to large retailersexceeded the cost savings of supplying these customers as compared with thegenerality of customers:but argued that these discounts reflected the buyingpower of retailers in a highly competitive business;. Birds Eye claimed that its

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discounts were unrelated to the proportion of the United Kingdom market forfrozen foods w hic h it su pplied; if the trade were in the han ds of ten suppliers,each having between 8 and 12 per cent of the trade, then discounts to largeretailers would almost certainly be higher.283. With regard to discounts paid retrospectively to some retailers on theattainm ent of certain sales targets, Birds Eye stated that the discoun ts were smalland paid only to a proportion of the retailers receiving discounts; they were aresponse to pressure on Birds Eye by the retailers and were not employed as anaggressive marketing weapon; they were intended to encourage retailers to sellmore Birds Eye goods and not to discourage them from selling the products ofBirds Eye's competitors. Birds Eye stated that it was simplistic to suppose thatth e fact that the discounts were paid retrospectively prevented their being taken

into account by retailers in their pricing policy. Just as retailers had to take intoaccount periodic payments that they made, such as rates and electricity bills, sotoo they took into account periodic receipts such as these discounts. On the o therhan d, the desire of retailers to receive discou nt as soon as possible provided anatural limit to the proportion of the total discount which they were prepared toaccept retrospectively. As the retrospective discounts hi question were part ofan overall bargain negotiated between the processors and the retailers, theywould be likely, if banned, to continue in another form.284. W ith regard to discounts related to the proportion of the retailer's cabinetspace allocated to Birds Eye products, Birds Eye stated that th e amount of frozenfood display space allocated by the retailer to Birds Eye inevitably affected boththe am ount of business which a retailer w ould do w ith Birds Eye and the averagesize of drop which he would take. Birds Eye considered tha t such discounts wererelated to economies in delivery, since size of delivery depended upon th eadequacy of refrigerated cabinet space available to receive th e delivery. BirdsEye believed that, if it were not free to agree to discounts related to cabinetspace allocation, then th e average size of its deliveries wou ld fall and its costs of

distribution w ould rise.285. Birds Eye stated that, while its system of discounts provided no specificincentive to the retailer to install additional cold storage in his shops, greatemphasis was placed by Birds Eye on the installation of refrigerated cabinets andBirds Eye had promoted schemes to encourage retailers to invest in cabinets.286. Birds Eye considered that the discounts which it paid for the allocationof cabinet space did not restrict the ability of smaller processors to supply the

retail trade.287. That did not mean that for its ow n comm ercial purpose Birds Eye wo uldnot like to reform its discount structure; indeed it hoped to begin to do so in1976 (see parag raph s 128 to 131). The object of the ref orm w as to relate a largerproportion of its discounts specifically to the size of order placed, to secure thatth e discounts were not enlarged autom atically w ith inflation, and, eventually, tocalculate th e discounts by reference to a published scale available to all. It wasclear th at the discoun t structure of Birds Eye had not impeded other suppliers ofquick-frozen foods from expanding their sales and doing so faster than Birds Eye.71


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Efficiency288. Birds Eye's claims regarding its efficiency have been outlined hi para-graphs 241 to 245. Birds Eye stated that th e pursuit of efficiency was of majorconcern to the company and pointed to the increase in the productivity of itslabour and capital and its history of innovation and improvements in productiontechniques. Birds Eye claimed that competition in the food market w as such thatBirds Eye would be making no profit at all but for the improvements in efficiencydescribed in paragraph 244, and competition had ensured that savings resultingfrom increased efficiency had been passed on by Birds Eye to its customers.

General289. In conclusion, Birds Eye claimed that it was the forerunner in the quick-

frozen food industry in the United Kingdom. It had developed and pioneeredth e processes and many of the standard products. It had had the initiative andth e foresight to invest in the industry at a time when it was not clear whetherretailers would be prepared to invest in the necessary equipment to handleth e products and when th e dom estic deep freeze cabinet had hardly been thoughtof. Birds Eye claimed to have been largely responsible for educating the retailtrade to handle quick-frozen foods and to have contributed more to the develop-ment of products, processes and equipment in the United Kingdom frozen foodsindustry than any other company; nearly all the developments introduced by ithad become available to its competitors. Birds Eye had pursued a policy of pricerestraint hi order to increase demand fo r quick-frozen foods and to expand itsbusiness in the face of competition from other producers. Such a pricing policy,combined with stringent Government price controls, inflation, and the risingcost of food, had resulted in a situation in which concern should not be whetherBirds Eye had done and was doing too well but whether it was doing well enough.

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