Competition causes concern in retailer-manufacturer dealings

By Jess Halliday

- Last updated on GMT

Related tags: Food prices, Private label, Competition, European union

The CIAA has expressed its concerns over the alleged abusive practices by retailers in their dealings with food manufacturers, as high food prices in 2008 put firms under pressure.

In a communication on food prices published in December 2008 (COM (2008) 821/4), the European Commission noted a number of ways in which retailers could act unfairly in their dealings with manufacturers. These include cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding.

The trade association said this week that other claims could be added to the list, such as chronically late payments, long payment periods for suppliers, ‘forced’ discounts to meet buyers’ targets, and ‘forced’ contributions to finance mergers and acquisitions.

It added that the increase in market share of private label products actually puts retailers in direct competition with manufacturers “which gives them additional powers in the supply chain”.

According to the latest data and trends document from the CIAA, private label brands are gaining ground in member states, with as much as 40 per cent market penetration in some markets.

 

If a retailer stocks a particular product, say tomato ketchup, under its own private label, this makes it both competitor and customer to the branded tomato ketchup of food manufacturers.

 

Competition questions

 

“Experience has shown… that competition law may not address all the relevant issues faced by food manufacturers, especially in their relationship with retailers, and may not take into account other criteria such as quality and service,”​ said the CIAA in its position statement.

One reason it suggests for this could be that, as long as retailers’ market shares remain below traditional dominance levels of 40 to 50 per cent, as typically set out by competition authorities, it can be hard to take action.

Competition law tends to result in ex-post reactions – that is, after the event.

Moreover, the CIAA points out that food retailers are tending to move into non food sectors such as banking, insurance and travel services. This, it claims, “strengthens their negotiating position even further”.

The trade association is calling on the European Commission and national competition and consumer authorities to take a long, hard look at several elements of the competitive landscape, such as the definition of dominance in procurement markets, the use of market power, and retailer-buying allowances.

A spokesperson for the British Retail Consortium noted that the recent Grocery Inquiry in the UK recognised food retailing as “highly efficient and focused on the interests of consumers”.

“Fierce competition between UK retailers has helped customers by lowering the price of food. It fell by over nine per cent in real terms between 1989 and 1999, and by a further eight per cent between 2000 and mid-2007,”​ he said.

Food price communication

The CIAA’s comments come in response to a European Commission communication on food prices in Europe which was published in December 2008

The communication focused specifically on price developments in food.

Broadly speaking, the CIAA said “it is important that the issue has been given particular attention”.

The CIAA’s full position paper is available here​.

The Commission’s communication on food prices is here​.

Related topics: Market Trends

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