No Easter cheer for US chocolate firms

While Easter is usually the happiest season of the year for chocolate manufacturers, the industry's leading players have been fed some bitter news this year in their most lucrative market, the US.

Mars, Hershey, Cadbury and Nestle have been served with a new lawsuit alleging that they conspired to push up the prices of their chocolate bars over most of the last decade.

The legal action, launched in Hershey's home state of Pennsylvania by a Minnesota grocery chain called Supervalu, adds to a mountain of litigation and regulatory scrutiny in North America over alleged price-fixing.

Hershey, maker of treats beloved of American children, from Reece's Peanut Butter Cups to Hershey's Kisses, has disclosed more than 100 lawsuits, including some class action suits north of the border that, if successful, could force them to compensate every Canadian who bought a chocolate bar between 2002 and 2008.

The four companies named in Supervalu's suit together control more than three-quarters of the US chocolate market, and its lawsuit reads like an introduction to an economics lesson for a potential jury.

The company says weakening chocolate demand should have caused prices to fall; instead, as consumers began to seek out healthier snacks, the manufacturers mysteriously managed to impose price rises for the first time in seven years.

"In the face of this waning demand, and the prospect of stagnating revenue, defendants decided to engage in 'collective self-help' - ie, collusion - in order to increase their prices, revenues and profits," according to the legal papers.

In December 2002, when Mars announced a 10 per cent price increase, first Hershey and then Nestle followed within six days. The same pattern was repeated over the course of a month in late 2004 and again in spring 2007.

While the manufacturers blamed rising raw material and other costs, Supervaluis suit says that cocoa beans - which account for 25 per cent of the cost of making chocolate - and sugar and milk - which, combined, account for another 28 per cent - were broadly stable in price over the period. All the manufacturers deny illegal behaviour.

The US Department of Justice has begun an investigation into monopolistic practices, although Hershey said last month that it has not yet been asked for documents. A European Union investigation was dropped.

Canadian competition authorities have progressed further with their investigations, and the latest private lawsuits rely heavily on the evidence from that case.

Thirteen Cadbury executives, which the Supervalu suit describes as 'co-operating witnesses', have provided evidence of contacts between the companies, including how details of a forthcoming price rise by Nestle were handed to a Cadbury executive in a brown envelope.

Hershey's chief financial officer wrote an email introducing the new Canadian boss of the company to his counterpart at Cadbury, joking: "In keeping with the good advice from The Godfather, keep close to your competition."

THE INDEPENDENT