Consumers set to benefit from French talks

- Last updated on GMT

Related tags: Retailers, Nicolas sarkozy

France's finance minister Nicolas Sarkozy has called on the
country's leading food retail groups to cut their prices in return
for a relaxation of some of the more restrictive legislation, in
particular the rules governing store extensions. All of which
should benefit the hard-press French consumers, faced with high
inflation and dwindling salaries.

Retailers such as Leclerc, Carrefour and Auchan have criticised the regulations - introduced to protect small suppliers from undue pressure on prices - which they claim keeps their prices artificially high by obliging them to sell branded goods at the purchase cost.

This means, in theory, that any favourable price negotiations with suppliers must be passed on to the consumers - and not simply line the pockets of the retailers - but most store neatly sidestep the issue by charging substantial listing fees - money paid by suppliers in return for a favourable in-store position, for example - which are not included on the purchasing invoice, and therefore do not reduce the overall cost of the product.

This, in turn, allows the supermarkets to benefit from its negotiating power, pocket the bonus and keep prices relatively high.

So why are the leading retail groups complaining so much? The answer lies in the current parlous state of the French economy, which has led to a sharp downturn in consumer spending. This has led to shoppers migrating from big-name retailers such as a Carrefour and Casino to discount operators like Lidl or Netto, whose own-label product ranges are not subject to the same regulations and which are therefore substantially cheaper.

The major players have conveniently accused the regulations, known as the loi Galland​, of being the main cause of their problems, preferring to argue that a more flexible pricing environment would stimulate growth than go down the route of cutting prices.

But Sarkozy has finally called their bluff, telling them to cut price by 3 per cent next this year and a further 2 per cent next year or face more legislation which would oblige them to do so. This, he suggests, would stimulate growth, and benefit the consumer, far more than the scrapping of the regulations and allowing a complete free-for-all on prices.

He has also called for some of the more obscure agreements between suppliers and retailers to be scrapped, in particular range agreements which see supermarkets stock every product sold under a brand name in exchange for a listing fee, a move presumably designed to stimulate competition between brands by freeing up shelf space for rival products.

But Sarkozy's approach is not all stick - there is a bit of carrot as well. If the retailers agree to the voluntary price cuts, he will make it easier for them to expand existing stores (although again with the proviso that a certain amount of the new shelf space be dedicated to small and medium-sized suppliers) and allow more Sunday openings (although at just 10 Sundays a year, France would still be some way behind many other European nations in this regard).

The aim of the negotiations, which have been broadly welcomed by the retail and manufacturing sectors, is to stimulate growth in consumer spending, and a cut in branded food prices would certainly help. Food in France is far more expensive than in many neighbouring countries, with the government's efforts to protect the powerful farm lobby and the large numbers of small food processors and growers ironically penalising shoppers through higher prices.

But high prices are also about retailers' margins, and Sarkozy has been rigorous in demanding price cuts, and therefore margin reductions, from the retailers before making any concessions on planning - a major coup in an industry where profit margin is everything.

Whether consumers will really benefit remains to be seen, of course, with many retailers suggesting that across-the-board price cuts would mean the end of customer incentives such as promotional coupons and loyalty cards - schemes which run alongside low prices in other markets such as the UK.

But shoppers should begin to notice a difference over the next few months - indeed, many retailers have already begun lowering prices to combat the discount threat - but greater liberalisation of the market is likely to be the only long-term solution to keeping prices truly competitive. The question is, could France's food industry survive such a move?

Related topics: Market Trends

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