Food Fight

Supermarkets With Super, Anti-Competitive, Powers

supermarket in berlin_DPA
Shop till the producers drop.
  • Why it matters

    Why it matters

    The rise of mega food retailers has stoked concern across Europe about a growing lack of competition. Germany is moving to protect small- and medium-sized retailers and producers.

  • Facts

    Facts

    • Some 85 percent of the German retail market is in the hands of just five big supermarket chains.
    • Producers have complained that German supermarkets have too much buying power.
    • The German monopolies commission has handed out a record amount in fines this year.
  • Audio

    Audio

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The increased market share enjoyed by large supermarkets in Germany is “alarming,” the Federal Monopolies Commission has warned. Edeka, Rewe, Aldi and the Schwarz group, which owns Lidl and Kaufland, account for 85 percent of the German market, a report by the commission said.

“Food retailing is highly concentrated. The market structure is threatening to deteriorate further,” the report, led by commission president Andreas Mundt, added.

The monopolies commission spent three years investigating the market power of the retail chains and their behavior. Investigators initially scrutinized product groups from frozen pizzas to coffee, ketchup, milk and tinned foods, and followed up by interviewing more than 200 food producers and 21 trading companies.

Extraordinary tricks were used to justify extra payments, the report, published last week, said.

For example, producers were coerced into helping finance the renovation of shops, and “wedding discounts” – favorable deals to ensure a supermarket stocked an item – were demanded of them. Producers also had to give retailers especially long terms of payment – de facto low-interest loans.

“Food retailing is highly concentrated. The market structure is threatening to deteriorate further.”

German monopolies commission,

The pressure on producers to lower prices was a double-edged sword, said Mr. Mundt. While it can bring about discounts, in the long term it will affect product quality. And the dependency of producers will increase as they earn less money.

The bigger the retail chains become, the weaker the position of producers – even big players with well-known brands – in negotiations on prices and discounts.

The monopolies commission saw, for example, an abuse in Edeka’s takeover of the Plus supermarket chain in 2009. Edeka renegotiated conditions with numerous producers, demanding hefty wedding discounts, the authorities said. The discounts were not justified by anything Edeka did in return.

The company is defending its actions in court.

The industry criticized the report. Edeka called the investigation “fundamentally flawed.”

“A small and not representative sample does not give an accurate picture of the whole industry,” said an Edeka representative, adding that the competitive situation in consumer markets was being completely ignored and consumer satisfaction overlooked.

The supermarkets have been asked to submit their feedback to the report by the end of the year.

The concentration of food retailing is a major issue all over Europe. The European Commission is currently discussing whether self-regulation is sufficient to deal with the problem or if new laws are needed. It will publish its own report at the beginning of October.

The monopolies commission, on the other hand, considers German competition law to be sufficient. Because of their influence in the market though, the four big food retailers can expect especially strict criteria to be applied in future, Mr. Mundt said.

 

Lisa Hegemann is a freelance reporter for Handelsblatt covering companies. Contact the author: l.hegemann@vhb.de

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