Unilever and Procter&Gamble are caught in illegal price-fixing on detergent. How to wash their hands clean of this?

We'll fast forward to a few years later 
And no one knows except the both of us 
And I have honored your request for silence 
And you've washed your hands clean of this 

Alanis Morissette – Hands Clean

Today the news was spread that the European Union wants to penalize the consumer goods giants Unilever and Procter & Gamble for illegal price-fixing in the washing powder and detergents business. A source with knowledge of this matter informed  Reuters of this intension. Here are some pertinent snips of the story.

Consumer goods giants Unilever and Procter & Gamble are set to be fined by EU regulators this week for fixing washing-powder prices, a source with knowledge of the matter said on Monday.

Germany's Henkel, which alerted the European Commission to the cartel in washing powder, will not be penalised, the source said.

"The Commission is expected to announce its decision on Wednesday," the source said.

As part of the settlement procedure, the EU watchdog will cut the fines by 10 percent in return for the firms' admissions that they participated in the cartel, which the Commission had dubbed "Purity" in its investigation, the source added.

[…]

The Commission can fine companies up to 10 percent of annual turnover for breaching EU rules. This will be the third EU decision using the settlement procedure after cases in the chipmaking and animal feed sectors last year.

[…]

American-based Procter & Gamble, Dutch/English company Unilever and German company Henkel are in the washing powder and detergent business what “the seven sisters” are in the oil business: oligopolists and what we call in The Netherlands ‘concullega’s´ (translated comcolleagues: competitors/colleagues).

The news that these giant companies are talking together about keeping the prices at a certain level is about as surprising as the news that Moammar al-Kadhaffi is still in charge in Libya!

These are trying times for people, companies and countries. The prices of raw materials everywhere in the world are rising sharply, while on the other hand the super market chains in The Netherlands and abroad squeeze every cent of margin out of the A-labels. They do this by letting the A-labels pay dearly for the best shelf space (the one at eye-and-hand level) and by introducing their own private label products, which directly compete with the A-labels on every aspect: look-and-feel, quality and especially price.

At the same time common people are looking for bargain deals for products they use on a day-to-day business, like washing powder, soap, dishwasher tablets and so on. This also puts the prices under pressure.

The worst thing that could happen to Procter & Gamble, Unilever and Henkel is that these ‘mortal enemies’ get involved in a tough price war and have to battle for the lowest price, while their already narrow margins go up in smoke. They want to prevent it at all cost.

So what happens then: representatives of these companies make an unofficial appointment or visit a fair for their line of business, start to drink a cup of coffee together in a hotel, have some laughs, talk about the business and the hard economic circumstances and suddenly a price-fix is born. Nowhere noted on paper, but as real as taxes. And you bet that all parties stick to it. Does this happen? In the “cartel capital of the world”, The Netherlands it happens almost every day and in almost every line of business. Was Henkel initially involved in the deal between P&G and Unilever? To my humble opinion, although I can’t proof it: you betcha! And is there a lot of money involved? Yes, there is: today I heard that Unilever is keeping a provision of €110 mln (!) for the penalty it might get from the European Commission.

But why did this deal go awry? Probably because Henkel had a fight about market shares in Germany and the other European countries and felt like it did get a too small slice of the international washing powder pie. The company afterwards acted like a woman scorned, by running to the European Commission for the internal market. In return now it can escape without having a penalty, but knowing that it will never pull a stunt like this again. You can bet that P&G and Unilever will use all weapons available to get rid of famous Henkel brands like Dixan and Persil. So it might be war after all: a war against Henkel.

And P&G and Unilever? They try to wash their hands clean of this, wait until the storm blows over and start to do price-fixing again on some future occasion. Hush,hush…

(to be undoubtedly continued…)


Update (13 April 2010):


P&G and Unilever are now informed of the penalties they will receive from the EC:

• Unilever got a penalty €104 mln
• Procter & Gamble will receive a penalty of €211 mln

That is a lot of washing powder