Trust-busters: Heineken unit Brau Union abuses market power

Austria | The news made screaming headlines: The Federal Competition Authority (BWB) seeks to fine Dutch Heineken and its Austrian subsidiary Brau Union potentially billions of euros for market abuse and violations of the anti-trust ban.

On 14 June, the watchdog submitted a 260-page application for an “appropriate fine” to the cartel court, having found evidence that the beer market leader Brau Union, with a share of some 60 percent, “cemented” its dominant position by using unlawful methods.

The investigation lasted for two years and included a search of Brau Union’s headquarters in Linz in April 2022. The cartel court had authorised the search warrant. The court will now have to decide on the fine, which can range between 1 and 10 percent of Heineken’s turnover in 2023, which stood at EUR 36 billion.

Whistleblowers raised alarm

The head of BWB, Natalie Harsdorf-Borsch, explained in a national radio interview that they had received anonymous complaints since October 2021, which triggered the investigation and the search.

The competition authority accuses Heineken’s Austrian unit of abusing its market power (or “dominance” in EU legal speak) by engaging in five illegal activities, none of which Brau Union could reportedly refute when presented with the evidence by the watchdog. Moreover, some of these illegal activities were still on-going. Hence the application for a fine.

Brau Union responded on 18 June, feigning “surprise” and calling BWB’s findings a “fundamental misunderstanding”. The firm added that it had always “shown itself to be extremely cooperative” in the proceedings and had provided the authorities with a comprehensive written statement.

Strong-arm tactics

BWB, for its part, declared its investigation underlines that Heineken Austria forced wholesalers to buy their beer brands not just exclusively but also many other brands from Brau Union’s wide portfolio. Those who did not comply were threatened with a termination of their contracts. According to BWB, Brau Union’s customers were also compelled to share sensitive data, which enabled Brau Union to closely monitor the market and its competitors.

The watchdog concluded that these measures were used to distort competition by restricting sales opportunities of industry competitors and driving wholesalers out of the market.

There were some 340 breweries in Austria in 2022. Brau Union, with 15 beer brands including Gösser, Puntigamer, Schwechater, Reininghaus, Schladminger, Wieselburger, Zipfer and Villacher, controls two thirds of the beer market overall. In some parts of the country, however, its market share is around 80 percent. Its beer volume sales are 5 million hl.

Second-ranked is privately-owned Stiegl from Salzburg with a share of 11 percent, followed by Vienna’s brewer Ottakringer with 6 percent. The numbers alone suggest that the Austrian beer market is highly concentrated, which already raises the possibility of anti-competitive impacts.

The unstoppable rise of Brau Union

This begs the question: Could the rise of Brau Union to near-monopolist (as US competition watchdogs would see it) have been prevented? Brau Union did not become Austria's top dog suddenly, but gradually. The company was formed in 1998 through the merger of Österreichische Brau AG and Steirerbrau. In 2003, it was taken over by Heineken, after receiving the green light from the EU Commission. In principle, mergers above a certain size can be challenged by the authorities and prohibited if necessary. “However, merger control adapted to European standards, as we know it today, has only existed since 2006,” the newspaper Der Standard wrote on 27 June.

When Brau Union, subsequently, made several takeovers, BWB recognised the risk of a dominant market position and imposed conditions. However, the takeovers themselves were not prohibited.