Competitive Intelligence

Rival Tortilla Makers Sue Over Supermarket Shelf Slotting

In search of a story today, I found out about this Tortilla flap in Harris County (Texas) District Court with a bunch of small, independent tortilla entrepreneurs are going up against a dominant competitor from Mexico to try and keep them from putting them all out of business by giving kick-backs to supermarkets.

From the Houston Business Journal:

The outcome of a current court battle between rival tortilla makers could affect the way product space is allotted on supermarket shelves. The trial began late last month over an antitrust lawsuit filed in Harris County District Court in July of 2001 by a group of 18 tortilla makers, including three in Houston.

The suit claims Dallas-Based Gruma Corp., a subsidiary of Mexican conglomerate Gruma S.A. de C.V., conspired to monopolize the sale of tortillas in various markets by using its dominant size to extract concessions from retailers. The group of small, independent tortilla producers seeks $70 million in damages. The case is significant on several fronts, legal sources say. A final verdict either way would set a strong precedent for future antitrust litigation.

Another primary focus, especially among attorneys, is the potential affect on "slotting fees," payments made by producers to retailers for the purpose of gaining preferential exposure for products ranging from toothpaste and tortillas to soft drinks and detergent. The financial stakes are also high. The $5 billion tortilla industry serves one of the fastest-growing food products in the country.

Rick Davolina of Davolina and Eureste LLP, one of several firms representing the tortilla makers, says the entrepreneurs took legal action to protect their interests. "We think it's a very significant case because the clients are all small business people who have been in the tortilla business for a long time," says Davolina. "Most of them are family-owned and have managed to grow their business."

Also representing the tortilla makers is Thomas Stanley of local firm Eastham Watson Dale & Forney LLP, who recently won a $14 million judgment against The Coca-Cola Co. on behalf of five independent soft-drink bottlers in a similar case over anti-competitive practices.

According to the lawsuit, the defendants:

1.) Controlled or tried to control the economic viability of competitors through financial payments to retailers.

2.) Unfairly used the company's buying power to influence where products landed on store shelves and, by extension, illegally controlled the fate and competitiveness of other products.

3.) As a result, the suit claims, Gruma and its associated companies "have eliminated or substantially reduced the availability and visibility of competing tortilla products ..."

Such restrictions allegedly have shut the smaller rivals out of a lucrative market. Tortillas have become big business in recent years. Nearly a third of the U.S. bread market belongs to tortillas, according to claims by the Dallas-based Tortilla Industry Association. The organization's membership includes more than 175 tortilla manufacturers, industry suppliers, distributors and companies with interests in the tortilla industry from around the world.

Antitrust attorney David Donaldson of Austin-based George & Donaldson LLP says the impact on future antitrust litigation will depend on how far the case is taken. If there is a high-dollar judgment favoring the independent tortilla makers that is then sent to the Texas Court of Appeals, it could set a precedent for how lawyers around the state argue on behalf of clients. "Our system recognizes that a company can get as big as it can get as long as it operates legitimately," says Donaldson.

- Arik