The French government has warned the country’s major grocery retailers to abolish contracts that make it difficult for franchisees to switch chains and that prevent rivals from setting up on former sites.
France’s Autorité de la concurrence announced yesterday (7 December) that, if retailers do not voluntarily implement its regulations, it would seek a law to “foster more competition in the retail sector”.
The competition watchdog said it was concerned about the level of retail concentration in some consumer catchment areas – particularly in areas with hypermarkets and convenience stores. It said the “current competitive situation is blocked because of various entry barriers and of obstacles to the mobility of independent stores across retail groups”.
The watchdog acknowledged it is difficult for French retailers to open large outlets due to the “relative scarcity of land and estate suitable for large stores”. However, it added that further barriers to entry come from “incumbent retailers” who introduce non-competition clauses and priority rights in land sales contracts. These clauses can last up to 50 years.
The authority said the clauses may prevent the buyer of commercial estate from starting a grocery operation that would actively compete with that of the incumbent retailer. Additionally, priority rights in selling contracts give retailers priority to re-buy land sites or estates likely to be sold to a competitor, allowing them to anticipate and counter the entry of a rival in an area.
The watchdog found that the six major retail groups – Carrefour, Leclerc, Intermarché, Auchan, Casino and Système U – are “seldom simultaneously present within the same consumer catchment area”.
For example, the market for convenience stores in city centres remains highly concentrated, with Casino holding a 60% market share in Paris, where the next largest operator in the area holds less than 20% share.
The watchdog is also calling for retailers to remove “obstacles to the mobility of independent stores across retail groups”.
It is calling to limit the duration of affiliation contracts to a maximum of five years, down from up to 30 years.
The watchdog also wants to limit post-agreement non-reafilliation and non competition clauses, which currently prevent storekeepers from undertaking an activity similar to that of the network it is leaving, or from becoming affiliated to another retail group for up to two years.
Additionally, it wants to prevent distribution groups from activating priority rights when independent shopkeepers try to sell, which currently artificially restrict competition by limiting competitors’ ability to purchase independent stores.