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Giant Eagle accuses chocolatiers of dark secret: price fixing

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Friday, March 28, 2008

Giant Eagle believes its customers are paying too much for chocolate.

And the O'Hara-based supermarket chain has decided to make a federal case out of it.

In a lawsuit filed this week in U.S. District Court, the company claims the world's largest chocolate companies formed a conspiracy to raise prices and stifle competition.

Giant Eagle claims it was overcharged for $200 million worth of chocolate products between 2002 and 2007. It did not mention by how much it overpaid The Hershey Co. of Hershey; Mars Inc. of McLean, Va.; Nestle, S.A. of Switzerland; and Cadbury Schweppes plc of London, and subsidiaries. A Canadian network of food distributors, ITWAL Ltd., which allegedly aided in the conspiracy, also was named a defendant.

Giant Eagle said it bought about $189.3 million worth of chocolate candy products -- candy bars, seasonal novelty chocolate and boxed chocolate -- between 2002 and 2007 from Hershey, Mars and Nestle. Those three companies control 80 percent of the U.S. market and generate $15.6 billion in retail sales, the lawsuit said.

The Pittsburgh region's largest grocery chain, which estimated its annual sales at $7 billion, wants the court to award it three times the amount of damages it allegedly suffered because of the conspiracy, plus interest at the highest rate on those damages.

Giant Eagle spokesman Dick Roberts declined to comment. The company owns 158 stores and 65 franchises in Western Pennsylvania, Ohio, West Virginia and Maryland.

Giant Eagle's lawsuit is at least the fourth filed in the United States since last year that alleges a chocolate conspiracy.

With control of the chocolate market concentrated in the hands of so few companies, and the technical difficulties of entering the market and merchandising new products, "the chocolate candy product market was ripe for collusion," Giant Eagle claims.

The supermarket chain contends the three suppliers increased average prices 16 percent from December 2004 to March 2005, even though there was no evidence of increases in raw material prices.

Hershey and Nestle raised their candy prices by an average of 11.7 percent this year, Giant Eagle said.

The suit cites a 2007 investigation by the Canadian Competition Bureau, which claimed Nestle, Hershey and Mars conspired to fix prices in Canada. Canadian authorities said an informant described meetings among top food executives that led to the price fixing.

It's difficult to prove collusion in terms of price-fixing, unless one of the parties involved provides evidence, said Shawn Thomas, a professor at the University of Pittsburgh's Katz Graduate School of Business.

"To say they were overcharging would be very difficult. There are a myriad of ways of justifying a price increase," such as the higher cost of ingredients and higher price of fuel, Thomas said.

None of the defendants would comment on the Giant Eagle suit.

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