The French Competition Authority (FCA) is entitled to give advisory opinions on any competition matter, in particular for the attention of the French Government and the Parliament. The FCA has been recently asked to give its opinion on cooperation agreements entered into between French large retail chains, which may have an impact in the food and drink sector in France.
On October 29th, 2014, the FCA received a request from Emmanuel Macron, Minister of Economy, to issue an opinion on the competitive impact of the agreements recently concluded between the central-purchasing bodies of AUCHAN and SYSTEM U, on one hand, and those of INTERMARCHE (INTERNATIONAL FOOD ITM) and CASINO (EMC DISTRIBUTION), on the other.
The FCA was also asked by the Economic Affairs Committee of the Senate to assess the impact on competition of the concentration of buying power of supermarkets and possible consequences for suppliers in terms of product access to the end-consumer.
Joint agreements were said to cover a broad range for products, including food and drink manufactured products. The deal between CASINO and INTERMARCHE would however not cover joint purchases of traditional fresh farming or fishing products, product brands supplied by SMEs or products branded with retailer’s own private label. The cooperation between AUCHAN and SYSTEM U would exclude fruit and vegetables, cheese, baked goods, cakes and pastries, meat and fish and does not cover private label products.
As for legal background, it should be reminded that suppliers or manufacturers on the one hand, and large retailers, on the other, are legally bound to complete negotiations and enter into annual contracts by end of February for the sale of the products during that year, including pricing terms. Large retailers groups have therefore entered into a series of joint-purchasing agreements together with a view to lower prices charged by their suppliers and increase retailers margin.
Such initiatives were somehow perceived as presenting a danger for employment and a risk of a economic downward spiral. Indeed, economists have warned about the risk that consumers reduce their purchases with a view to get even lower prices in the future, which may result in production decreases, redundancies and reduction of salaries in the short or mid term. However, some other analysts consider that joint-purchase agreements may help manufacturers to generate economies of scale and rationalize their product ranges. In any event, joint-purchase agreements involving several large retailers could have a negative impact on suppliers or manufacturers bargaining power.
The impact on competition of alliances between large retailers should be assessed by the FCA in light of the market position of the parties involved. Indeed, INTERMARCHE is reported to represent 14% of France’s retail market approximately, CASINO 11.2%, AUCHAN 11.3% and SYSTEM U 10.3%.
The FCA’s opinion is not expected to be issued for a further 3-4 month, while the annual negotiations between suppliers and large retailers are on-going for 2015.