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  1. Analysis
February 12, 2008

Attali report suggests victory for French retailers

A wide-ranging review of French economic strategy undertaken by a commission led by Jacques Attali looks set to have major implications for French food retailers and producers. In advocating the repeal of two controversial pieces of legislation, Peter Crosskey writes, the Attali commission appears to have paid more heed to lobbying by major retailers than the views of food manufacturers.

A wide-ranging review of French economic strategy undertaken by a commission led by Jacques Attali looks set to have major implications for French food retailers and producers. In advocating the repeal of two controversial pieces of legislation, Peter Crosskey writes, the Attali commission appears to have paid more heed to lobbying by major retailers than the views of food manufacturers.

French president Nicolas Sarkozy appointed Jacques Attali last September to lead an economic think tank to recommend radical economic strategies. The report was published on 23 January and while the food industry is only one of many areas addressed, Attali’s findings were always likely to have implications for French food manufacturers and retailers.

Although the Attali report is notable for rarely mentioning food-related topics directly, it acknowledges the significance of the food industry to the French economy. France is the world’s second largest food exporter, Attali declares. National statistics agency INSEE reports that the country had a EUR9bn (US$13bn) trade surplus in food products last year.

Retailing generates 6-10% of the French GNP, says Attali, adding that food is the second largest item of household expenditure after housing. As a national average, food accounts for 14% of household expenditure (INSEE, 2008) at a time when household budgets include growing expenditure on consumer technology, such as online content and telephony.

Of primary interest to the food industry would be the view this root-and-branch review of economic policy would take towards two pieces of legislation, which respectively regulate the relationship between food suppliers and retailers, and that between large retailers and small ones.

It would appear that Attali has taken a fairly radical view of both of these interventionist measures. He has called for the scrapping of the loi Galland, which has made below-cost selling illegal for the past ten years, and recommended rescinding the 30-year-old retail planning restrictions of the loi Raffarin, which imposes strict conditions on the expansion of larger retailers.

The latter requires planning applications for large premises to demonstrate that they would not take trade away from smaller retailers. This has succeeded to some extent, and explains why local specialist retailers in France have proved more robust in the face of expanding supermarket chains than those in other countries. For example, nearly two thirds of all retail bread sales still pass through independent bakeries.

France is unusual in outlawing below-cost selling: the latest version of the loi Galland came into force on 4 January and requires promotional activity, transport and year-end discounts to be included in price calculations. It also requires suppliers to issue a single annual price list to retailers, from which multiple retailers negotiate their terms and conditions. The same opening price is offered to every retailer.

Critics of the law contend that this restricts retail competition and keeps prices artificially high. However, the brand owners’ association, ILEC (Institut de Liaisons et d’études des industries de consummation), states that multiple retailers have seen their margin on brand retail sales rise from 26% to 35% over the last nine years. The ILEC also states that own-label prices have risen by nearly 4% during the 12 months to November 2007, unlike brand prices which have risen by less than 2%.

Another bone of contention among suppliers is how retailers charge for so-called commercial cooperation, which would include listing fees and merchandising arrangements such as the number of facings and gondola ends. It has become common practice for retailers to charge for this by making unilateral adjustments to outstanding invoices.

UMP Deputy Jean-Paul Charié is an outspoken critic of this practice. “In France, consumer prices could go down by at least 10%, if retailers were actually punished for issuing fake invoices to their suppliers,” Charié said late last year. “Suppliers’ prices have gone up since retailers have increased their financial levies on suppliers by at least 30%.”

Retailers and suppliers are currently locked in price negotiations on all their listings. Working line by line, they have until 1 March. At present, retailers stand to harvest less cash in year-end discounts than in previous years.

However, one criticism leveled at year-end discounting is that the consumer sees no benefit from a substantial cash handout to the retailer long after the
original transactions. Moreover, critics contend that retailers in general do not pass on price reductions willingly to consumers.

“Between 2003 and 2007, the retail price of milk and cream rose by 0.9%. During the same period, the prices paid to processors by retailers dropped by 4% for milk and 3.4% for cream,” says Michel Raison, rapporteur for the commission that worked on the latest amendments to the loi Galland last year.

While Attali blames the combined effects of the loi Galland and loi Raffarin for pushing up prices and reducing competition between multiple retailers, this view overlooks the original purpose of the loi Galland. The Finance Minister of the day hoped to protect French food suppliers, around 85% of which are SMEs, from the rampant commercial abuses recorded in past years. The list price usually makes provision for unscheduled promotional requests, providing a buffer for supplier margins.

Throughout the duration of the Attali commission, France’s major food retail chains, represented by the multiple retailers’ federation, the FCD, and prominent retail figures such as Auchan president Arnaud Mulliez and FCD president Jerome Bedier, have lobbied tirelessly for the repeal of both of these laws. It was not surprising therefore that Michel-Edouard Leclerc, chief executive of the Leclerc supermarket group, has welcomed “98%” of the report.

While clearly offering benefits to major retailers, the FCD insists that repealing the loi Galland will be good news for consumers and suppliers as well. “Scrapping the loi Galland will allow direct negotiations without having to invoice for services,” says the FCD. “It will increase competition and simplify things for SMEs and the consumer.”

The apparent lobbying success of the major retailers appears to be in stark contrast to that of food manufacturers. France’s 10,500 food manufacturers are represented in parliamentary corridors by the Association Nationale des Industries Alimentaires (ANIA). It made a written submission but was unable to secure one of the 450 hearings held by the commission.

However, the ANIA has put its faith in parliamentary lobbying for the next round of legislation. “ANIA attended a hearing of the Hagelsteen commission on January 18 to present its position,” ANIA states. “This conversation allowed us to reconfirm the food industry’s attachment to a legislative framework for doing business. ANIA is in favour of simplifying these laws, as long as safety clauses are built in to allow for the power imbalance between the parties concerned.”

Legislators will return from the local elections in March, to work on a fresh round of changes to supplier/retailer regulations with voters’ grumbles ringing in their ears. Against Attali’s carefully groomed prose, it will be even harder for the ANIA to be heard, even in the vital parliamentary business of the coming weeks.

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