If you feel your Valentine’s Day chocolates are not such a sweet deal this year, you’re not alone. Regulators are investigating price fixing among candy makers in at least three countries.
In the last week, the German Federal Cartel Office raided the offices of seven of the leading chocolate companies, including Mars, Kraft Foods and Nestle, searching for documents. Three months ago, Canada’s Competition Bureau searched the offices of several companies, many of the same ones as in Germany.
The Canadian investigation sparked several American lawsuits accusing the world’s biggest chocolate companies of violating antitrust laws.
The U.S. Department of Justice declined to confirm it is investigating, yet several companies confirmed receiving inquiries.
The retailers and consumers who filed suit allege the companies needed to fix prices because while the costs for raw materials such as milk and cacao have increased, sales of chocolate in the United States have remained relatively flat in recent years. Chocolate manufacturer sales grew by 2.9 percent in 2007 to $16.3 billion, according to the National Confectioners Association.
The cases detail how informants kept letters for years, showing that Canadian executives exchanged confidential pricing information dating back to 2002 through e-mail, phone and meetings.
Marilyne Nahum, a spokeswoman for the Competition Bureau, declined to discuss the details of the ongoing investigation and said no charges have been filed. The companies could face criminal conspiracy charges, which carry penalties of up to 10 million Canadian dollars and five years in prison.
According to affidavits submitted in an Ontario court to obtain search warrants, top executives at Hershey, Mars and Nestle met secretly in coffee shops, restaurants and conventions to set prices. The volume of commerce involved is potentially in the billions of dollars per year.
The German Cartel Office has said it suspected the companies had conspired with one another to raise their prices even higher than the increase in the price of raw materials, such as cocoa and nuts, would have demanded. If the office finds evidence of collaboration, the companies face possible fines of up to 10 percent of their annual income.
In addition to the government investigations, the companies are facing lawsuits from a gaggle of plaintiffs.
A New Jersey confectionery company filed the first lawsuit in late December, charging price fixing by an international cartel of companies – Hershey and Mars, the leading chocolate companies in the United States, along with other companies such as Nestle and Cadbury Schweppes.
The confectioners claim that a cartel raised prices three times since 2003 and planned another hike for 2008.
German officials said the companies raided this week had agreed at the beginning of the year to raise prices.
At least 45 similar suits have been filed in eight states on behalf of more than 50 consumers and companies.
A federal court in Newark next week is scheduled to hear a motion to consolidate the 16 New Jersey cases. Another federal court will determine which district in the United States will hear the consolidated cases. After an initial hearing expected in late March, a decision could take months.
If the class-action suit is successful, manufacturers could recover their share of the chocolate purchased, an attorney behind one of the suits said.
Other plaintiffs would be eligible to collect damages if they purchased chocolate directly from the companies, either as manufacturers or from company-owned sites such as Hershey Park in Pennsylvania or retail outlets such as Mars’ M&M stores. That could involve potentially billions of dollars for hundreds of thousands of consumers, Salzman said.
Yet consumers aren’t surprised to hear about the alleged plot.
“Oil and gas prices are fixed, and diamonds,” said Owen Cullimore, 37, an accountant from Long Island, N.Y. “Why should chocolate be different?”
He buys about $50 worth of chocolate per year, including Cadbury bars with nuts. He said he wouldn’t be bothered if he had been paying more.
“It’s a nominal fee,” Cullimore said.
