PRESS RELEASE

AGRI-FOODSTUFFS: THE ANTITRUST AUTHORITY REPORTS THE STRENGTHENING OF MARKET POWER OF THE LARGE-SCALE RETAIL CHANNEL, CONFLICTUAL RELATIONSHIPS WITH SUPPLIERS AND UNCERTAIN EFFECTS ON CONSUMERS

The large-scale retail channel has experienced development and strengthening of its market power from the buyer power viewpoint. The role of purchase centres has increased with effects that are not always beneficial for suppliers and consumers. The Authority will evaluate the market’s new structure carefully, also intervening with new tools provided for by the law in force.

There has been an increase in the market power of the large-scale retail channels as regards commercial relationships with suppliers, also owing to the strengthening of the role of purchase centres whose effects reverberate not only on the economic conditions in the market in the initial phase of supplying, but also in the final phase of sales, with possible repercussions detrimental to final consumers. This is the picture emerged from the preliminary investigation closed by the Antitrust Authority in the past weeks concerning the situation of large-scale retail channels in the agri-foodstuff sector.

The investigation highlighted the presence of criticalities in the structural characteristics as well as in the functioning of the sector, in particular noticing an increase in the issues concerning the relationship between suppliers and large-scale retail channels. In this regard, the role of purchase centres is fundamental as they seem to have favoured the transparency of the contractual conditions with producers, also making negotiations less fluid and reducing the level of competition among retail channels, with negative effects on the possible reduction of prices in the final phase. Even the phenomenon of trade spending – the amounts paid by suppliers to the large-scale retail channels so as to remunerate the promotional, distributive and sale services – seems to have contributed, on one hand, in increasing conflicts between producers and distributors, and on the other, in weakening competition on the final prices, raising the cost benchmark for price competition among channels.

Taking into consideration the increased market power of the large-scale retail channel as regards the buyer power, the Antitrust Authority will make use of all the intervention tools provided for by competition protection laws, evaluating possible anticompetitive effects on the consumer’s wellbeing not only from the viewpoint of a short-term period of time but also from the viewpoint of a middle-long term period. As regards the transfer of agricultural and agri-foodstuff products, besides the traditional tools (preventive assessment of concentrations, ascertainment and sanctioning of agreements and abuses), the Antitrust Authority has a new tool of intervention constituted by article 62 of law no. 27/2012, which enables it to sanction conducts which represent an illegal execution of contractual power on behalf of the demand detrimental to suppliers. Owing to this new power, complementary compared to those already provided for by antritrust laws, the Authority will be able to intervene in order to protect public interest represented by the correct competition structure of the market when commercial relationships of vertical nature (not quantifiable as vertical agreements or as abuses of dominant position) between large-scale retail channels and suppliers produce indirectly “relevant” negative effects on said structure.

The main aspects of the investigation are evidenced as follows:

90% OF THE MARKET CONTROLLED BY 18 OPERATORS, BUT LOCAL MARKETS PLAY AN IMPORTANT ROLE

The level of concentration in the sector of the large-scale retail channel, including big distribution and organized distribution, is not particularly high, especially if compared to that of other main European Countries. In particular, in January 2011, 90% of the market shares were held by about 18 operators, of which only 2 with a share above 10%, and 6 with a share above 5%. However, operators are not distributed with uniformity throughout the national territory. In fact, the sale shares, despite being contained at national level, reach rather high values in several local markets, giving space to a very high level of concentration which weighs on the relationships among the actors of the channel.

PURCHASE SUPERCENTRES WITH A ‘VARIABLE’ FORMATION

There has been an increase in the number of purchase supercentres, 7 in all, which aggregate 21 channels, with a share of the total national sales of the large-scale retail channel equal to almost 80%. These were established so as to respond to the competitive pressure of the big international groups, the big purchase centres, through which the single chains negotiate the conditions with the suppliers that, in the past years, have undergone transformations that bring to light competitive issues. First among all, the variability of their composition, with operators that enter and exit the various channels. This causes an increase in the transparency of the conditions negotiated with the suppliers, with a reduction of the competitive pressure on costs and a tendency to unify the conditions obtained from each supercentre. Another element is the complexity of the negotiation with the suppliers which develops at various decisional levels, to the detriment of company efficiency and the consequent reduction of costs. In fact, the investigation highlighted that the negotiation carried out in the ambit of the supercentres did not substitute the negotiation with the single channels. Therefore, the reached structure reduces incentives to transfer to the consumer the cost savings obtained. Even the shifting of an increasing part of the negotiation between large-scale retail channels and suppliers on the taxes that they must pay due to trade spending does not seem to stimulate the transfer to the consumer of the cost advantages in purchases.

SUPPLIERS IN DIFFICULTY, THE BURDEN OF TAXES FOR SERVICES

On the basis of the elements collected during the investigation and of the analysis of the questionnaires completed by 320 national agri-foodstuff companies, a situation of conflicting relationships emerges between producers and large-scale retail channels as regards taxes paid by the former for the expositive, distributive and promotional services provided: it is an item which usually affects by about 40% the total of the economic conditions negotiated. The investigation highlighted that the distributors, in the negotiation concerning the selling of services, actually carry out the following behaviours:

1) they condition the purchase of the products to the sale of the service packet;

2) they impose sale prices detached from the characteristics of the services and the actual advantage which the supplier may receive from the same;

3) they provide inadequate trade spending compared to the price paid, moreover the verification of said adequacy does not always result to be easy for small producers.

Rome, 13^th August 2013