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Opinion
02/08/2016

Colleagues in conflict

Vidal Maté. @trigolimpio_VM

High-volume retailing of mass-market goods, particularly in the food sector, is often a nightmare and the target of criticism from the food industry and the agricultural sector itself, because of the downward price wars among the various groups, the very high impact of cheap generic brands, the upfront fees or grease payments required to get a place on their shelves, the adverse effect of their policies on manufacturer brands, highlighted by Promarca, in terms of mark-ups or appropriating innovation, the fact that 71% of the disciplinary actions instituted by the Food Chain Information and Control Agency (AICA) are for non-compliance with deadlines for payments or signing of contracts, and for many other reasons that any of those affected could bring to the table.

Although on paper there are over 50,000 stores and 200,000 restaurants, bars, and hotels in Spain, the reality is that just ten major groups control over 50% of sales, a percentage that rises by almost a further 10 points when we include small and medium-sized local or regional chains, with a total of some 19,000 supermarkets. This, then, is the pattern of retail trade that has developed in the past few decades and that shows every sign of being in a position to retain the lion’s share of a total business worth in excess of 90,000 million, leaving aside the new sales mechanisms that have burst onto the market and are vital, especially to those thousands of medium-sized companies, for marketing their products.

Not all high-volume retailers can be tarred with the same brush or accused of the same strategies, but the fact is that outrageously low pricing, by some groups, of certain products such as oil, milk and rabbit meat, even sometimes selling at a loss, has increasingly led to the agricultural sector and much of the industry seeing high-volume retail as an enemy that they would like to do away with because of its arrogant approach, or at least that they would like to be able to negotiate with on equal terms to achieve a balance among the interests of all those involved in the food chain.

Aside from whether alternative forms of marketing can be organized in the future to reach consumers directly, the fact is that the profitability and viability of industries and the profitability of agricultural activity depend on these high-volume retailers and their strategies. Policies based on low prices, teaser prices, loss leaders, going for cheap imports or deferred payments, all for the sake of fighting each other for more market share, are felt to be putting the foundations of agricultural and industrial activity at risk. In contrast, a high-volume retail sector aware of and committed to its role could be an important basis for promoting a change in agricultural production, an improvement in its image and presentation and an end to downgrading the image of quality products through their price wars or special offers, which we have seen not just in the last few weeks.

High-volume retailing is the key element in the upward food chain, but it has more damaging direct effects downward. Analyzing the situation, when something is not working and is seriously damaging key sectors, we also need the public authorities to get involved and plug certain black holes in the current regulations, controlled by the Ministry of Agriculture, to make everything function in a way that balances interests. But apparently this is a matter of no interest to those in charge of competition policy, who are so keen to defend the market economy in the food sector and to oppose producers organizing even at a minimal level against the virtual monopolies of retail trade that have things all their own way, with low RPI as their watchword. It is important for retailers to be committed to offering consumers the best product at the best price, but it is equally important for them to be committed to the profitability of producers and industry. Retailing is a key factor in the lives of millions of people behind the shelves.

The current situation of war among unequal sides is hardly ideal. We cannot regulate free market activity, but we can curb the abuses. In some countries, governments have delivered warnings to the same major groups operating in Spain to make them respect the right of survival of industries and the agricultural sector and abandon knock-down pricing. In Spain, we have seen how a group only got the message to change its attitude when forceful measures were applied. The agreement shoehorned in by the Ministry of Agriculture has not solved companies’ unfair practices, but it has done something to increase sensitivity. At this stage in the development of the model, we need high-volume retailers, but they should stop being the enemy that is a nightmare for the rest of the chain and become a conciliatory colleague that can and should play its part, enhancing industrial and agricultural activity and making it more viable instead of stifling it.

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