The Norwegian government has released a report outlining its concerns around the highly consolidated nature of the country’s grocery retail sector. The report claims that retailers are able to exert excessive influence on suppliers and is seeking legislation to redress the balance. Petah Marian reports.
The Norwegian grocery retail sector is highly consolidated, with the four largest umbrella groups – NorgesGruppen, Coop Norge, Reitan’s Rema 1000, and ICA Norway, which is majority owned by Ahold Ahold – accounting for some 96.3% of market share. From a procurement perspective, the concentration is even higher, with those four groups controlling access to more than 99% of the grocery market.
The government published a report called Food, Power and Powerlessness on Wednesday (13 April), which argues, that looking at the food chain, it has identified that there has been a “strong change” in favour of the retail sector, with its ministers now seeking legislation to “ensure fairness in negotiations and good trade practices”.
The report claimed to have “uncovered factors it believes may be characterised as unreasonable business practices” that may have consequences for consumers in terms of selection and prices but, it argued, are also significant for the “development of the entire food value chain”.
The Norwegian government’s Food Chain Committee, which authored the report, is now calling for an ombudsman to enforce the law, as well as better food labelling, new rules on franchises, and a grocery portal, which will allow consumers to compare prices on groceries between the retailers.
The highly consolidated nature of the Norwegian grocery sector makes it a difficult one for suppliers to navigate. According to the report, annual negotiations between suppliers and retailers, called ‘fall hunting’, effectively means that suppliers have one meaningful opportunity to negotiate with the four buyers in order to get their products listed. It said that there is a “certain dynamism” and opportunities for change during the year, including in connection with three launch windows and two price adjustment periods, but that, largely, all negotiations are managed through that fall hunting period.
One of the Committee’s aims is to introduce legislation that will ensure reasonable prices for Norwegian consumers, a wide selection, good quality and easy availability.
The report found that Norwegian supermarkets offer a far more limited range than its Scandinavian neighbours. According to the report, there are almost twice as many product varieties in Swedish stores than in Norwegian ones.
For example, the report found that Swedish retailers stocked some 290 cheese varieties compared to Norway’s 125 and 45 bread varieties in Norway compared to 134 in Sweden.
Neil Saunders, a retail analyst at Datamonitor‘s retail arm Verdict that the industry could not support a broader range. “If you walk into a supermarket in Norway, you have 20-40% less choice, [than a supermarket in the UK or Germany] and one of the reasons for that is because the stores are much much smaller, and the volumes that are bought nationally are much smaller,” he says.
“A country the size of the UK, might be able to support 20-30 products in a category, but in a country like Norway with its size and geographical distribution may only be able to support five or six,” Saunders adds.
More significantly from a consumer perspective, however, is that the report claims Norway has the highest prices for food and alcoholic beverages in Europe, some 55% higher than that of the EU on average. It has the highest bread and cereal prices of anywhere in Europe with the most recent figures from 2008 putting at 60% higher than the average, while meat, and dairy products are also particularly higher than the European average at 80%, and 54% higher, respectively.
Saunders says that while there is “some truth” to the notion that high prices are down to the highly consolidated nature of the sector, there are a number of other factors influencing these prices, including weak economies of size, logistics issues and high tariffs and taxes.
He says that national retail coverage is a “nightmare” with some places needing perishables delivered by air, which “inflates prices quite a lot”. He adds that taxes on food are at around 14%, with extra taxes on products containing higher sugar levels and fat levels.
He added that there are few incentives for retailers to launch a price war as there is a high level of “consumer apathy” towards price, despite a healthy discount sector in the country. And given the country’s geographical spread, he suggests that there would not be that many opportunities for a price war to take place, given that in any town, there might be only one or two small supermarkets.
He also suggests that having four large operators means a better deal for consumers than the more fragmented one they had 40 years ago.
“One thing that hasn’t been mentioned to date, if you go back 30-40 years in Norway, the market looked very different. And one thing you did have then is a lot more specialist independent stores, and actually when that existed that was really expensive. Those specialist independents were very, very expensive stores,” Saunders argues.
“Although prices are elevated, I would suspect that over the past 25 years grocery prices have come down. One piece of data I have to support this is that Norwegian consumers today spend a much lower proportion of their disposable income on food compared to 15 years ago. While prices are still elevated, they haven’t kept up with salary price inflation.”
Regarding the investigation by the Food Chain Committee, Saunders wonders “why now?” suggesting there might be a more political agenda behind the investigation, given that prices have been at their current level for “quite some time”.
He suggested that the investigation is a good thing as it does “put a spotlight on the reasons why prices are so high”, but that the country might do better to reconsider its tariffs and taxes the government imposes on the food retailers sell.
However, even though the Norwegian government is scruitinising the high price of food in the country, Saunders suggests the government is unlikely to reduce the tariffs imposed on retailer. Saunders argues the government derives a lot of its support from farmers – who are unlikely to support changes that would mean they lose some of the benefits from this highly funded sector.