Antitrust Law Daily Wrap Up, ANTITRUST NEWS: European Commission releases results of retail food study, (Oct 2, 2014)

By Linda O’Brien, J.D., LL.M.

The European Commission (EC) today released the results of a comprehensive study titled “The economic impact of modern retain on choice and innovation in the EU food sector” about the evolution of choice and innovation in food products in Europe during the last decade. The Competition Commission announced that it was seeking comments from stakeholders on the study results.

The results of the study show that the entry of new competitors always increases choice and innovation. In many EC Member States, retail markets are not overly concentrated, and the retailers' bargaining power does not seem to have a negative impact on choice and innovation. While choice for European citizens has continuously increased in shops since 2004, the number of innovations reaching the consumer each year has decreased since 2008 largely due to the economic crisis.

The EC carried out the study following complaints from various stakeholders, including operators in the food supply chain as well as requests from the European Parliament to investigate the impact of concentration in the chain. The complaints alleged that large operators, in particular large modern retailers, impose often detrimental conditions on their suppliers and so these suppliers are not able to invest in new products. This would allegedly have reduced choice and innovation in food products for European consumers. The main results of the study are:

Evolution of concentration, choice and innovation. At local level, consumer choice has been continuously increasing over the last decade in terms of number of shops, products, brand manufacturers and product package sizes displayed in shops. However, the number of innovations reaching the consumer each year has decreased since 2008 by 6.5%. In 2004 innovation essentially consisted of new-to-the-world products and range extensions, whereas in 2012, roughly a third of all innovations merely concerned the packaging of a product.

Concentration of brand manufacturers at national level has increased in most product categories investigated. Concentration of retail overall (i.e. modern retail and traditional shops) has increased in virtually all Member States, essentially because of the increased penetration of modern retailers. Concentration of modern retailers alone increased in certain Member States and decreased in others. In local areas, modern retailer concentration seems to have slightly decreased on average because the main chains have entered each other's local markets.

Drivers of choice and innovation. The main drivers for both choice and innovation have been the size and types of shops and the economic environment (GDP/capita and unemployment in the local area). Also, the larger the turnover in a product category, the more choice (and innovation, to a lesser extent) there is in that category. The opening of a new shop leads the competing shops to offer more choice and innovation on their shelves.).

In moderately concentrated retail markets, retailers' stronger bargaining power vis-à-vis suppliers does not seem to lead to less choice and innovation in food products. The lack of data prevented the study from analyzing situations of high concentration of modern retail (such as those in Nordic and Baltic countries). Moreover, the share of private labels in the assortment does not have a significant impact until it reaches a high level (depending on the category) at which it may become detrimental for choice and innovation.

“In the past five years, stakeholders have raised lots of questions on the functioning of our food supply chain,” said Joaquín Almunia, Commission Vice-President in charge of competition policy. “We need hard facts to assess the concerns expressed, in particular regarding the impact of the bargaining power and private labels of large retail chains. This study provides important insights and paves the way for future work in these areas.”

News: Antitrust