Makers and retailers fined £225m over tobacco pricing

The competition watchdog today hit ten retailers and two tobacco manufacturers with fines totalling £225 million for "unlawful practices" in pricing of cigarettes, cigars and rolling tobacco.

The fine - the largest total ever imposed by the Office of Fair Trading (OFT) - came after Imperial Tobacco and Gallaher struck 'price matching' arrangements with retailers in which the prices of their tobacco products were linked to those made by rivals.

Simon Williams, the OFT's senior director of goods, said: "Practices such as these, which restrict the ability of retailers to set their resale prices for competing brands independently, are unlawful.

"They can lead to reduced competition and ultimately disadvantage consumers."

The OFT said the breaches took place between 2001 and 2003.

The retailers caught up in the case were Asda, the Co-operative Group, First Quench, Morrisons, One Stop Stores (formerly T&S Stores), Safeway, Sainsbury's, Shell, Somerfield and TM Retail, the owner of the McColls and Martins chains.

Safeway has since been bought by Morrisons, the Co-operative has acquired Somerfield and First Quench - which owned off-licence Threshers - went into administration last year.

The watchdog said the agreements over price links between rival brands "restricted the ability of these retailers to determine their selling prices independently".

Supermarket Asda, one of the six firms which applied for leniency from the OFT in 2008, was fined £14.1 million, while the Co-operative Group was handed a £14.2 million penalty.

Sainsbury's escaped a fine because it blew the whistle on the practices, while the watchdog has dropped allegations against market leader Tesco due to lack of evidence.

Imperial Tobacco, whose tobacco brands include Lambert & Butler, received the biggest fine - £112.3 million - but denied "categorically" that its pricing practices were anti-competitive or impacted consumers.

The group plans to appeal and added: "The purpose of these arrangements was to encourage our brands to be priced competitively and that the promotional discounts given to retailers were passed on to consumers in the form of lower retail prices.

"Far from being anti-competitive, these arrangements were pro-competitive and to the benefit of consumers. Retailers remained free to set their own prices."

Gallaher, which was bought by Japan Tobacco in 2007 and makes Silk Cut cigarettes, was fined £50.3 million.