Page last updated at 10:08 GMT, Friday, 16 April 2010 11:08 UK

'Unlawful' tobacco pricing leads to 225m fine by OFT

Simon Williams, Office of Fair Trading, on the impact of the pricing practices on consumers

The Office of Fair Trading (OFT) has fined two tobacco companies and nine retailers a total of £225m for "unlawful" tobacco pricing practices.

The fines relate to infringements which took place between 2001 and 2003.

The OFT said that there was an understanding that the price of some brands would be linked to rival brands in order to limit competition.

It is the largest combined fine handed out by the OFT for anti-competitive practices.

Manufacturer Imperial Tobacco - owner of Embassy and John Player - was handed the biggest single penalty, at £112.3m.

Imperial Tobacco: £112.3m
Gallaher: £50.4m

Morrisons: £8.6m
Safeway (now owned by Morrisons): £10.9m
The Co-operative: £14.2m
Somerfield (now owned by the Co-operative): £4m
Asda: £14.1m
Shell: £3.4m
TM Retail: £2.7m
First Quench: £2.5m
One Stop Stores: £1.3m
Sainsbury's: No fine
Source: Office of Fair Trading

Along with Gallaher - which owns Benson & Hedges and Silk Cut - it was accused of asking retailers to match price changes on its rival's equivalent brands.

Imperial Tobacco said it denied "categorically" the price-linking, and would appeal against the decision in court.

The firm added: "Far from being anti-competitive, these arrangements were... to the benefit of consumers."

The fine is a significant amount of money - around 10% of Imperial Tobacco's forecast 2010 net cashflow according to analysts.

However, the company may also be smarting at the bad publicity the decision brings with it.

In contrast, Gallaher only has to pay £50.4m because it admitted its involvement two years ago.

'Illogical' stance

Of the retailers, the Co-operative and Asda received the heftiest individual fines at more than £14m each.

However, Morrisons was landed with a total fine of nearly £20m - made up of £8.6m for its own business and another £10.9m for that of Safeway, which Morrisons bought in 2004.

Similarly, the Co-operative also inherited additional fines because of its acquisition of Somerfield.

Both retailers have stated that, like Imperial Tobacco, they are either considering or intending to appeal.

Morrisons said that the OFT's stance was "illogical and without foundation" and "based on a novel interpretation of the law".

The other retailers involved in the pricing practices were First Quench, One Stop Stores, Safeway, Sainsbury's, Shell, Somerfield and TM Retail.

The OFT said it had dropped an investigation into the relationship between Tesco and the two manufacturers due to "insufficient evidence".

The OFT first began to investigate tobacco prices in 2003, and formally issued allegations in April 2008.

Six companies admitted unlawful practices at the time - Asda, Somerfield, First Quench, TM Retail, One Stop Stores and tobacco firm Gallaher - and have earned discounts on their fines.

The OFT said that Sainsbury's had escaped any fine at all, because it had been the first to alert the OFT to the pricing practices and thus received "complete immunity" from the fines.

Asda, One Stop Stores and Somerfield were granted larger discounts because they volunteered information to the OFT before the investigation was formally launched.

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