last updated 17 november 2014article by martin favartvan bael & bellison 2 october 2014, the european commission published a study on the evolution of the european food retail market over the last ten years, aiming to assess the key drivers of choice and innovation, their development and economic impact. the study comes against a background of criticism, regarding the functioning of the food supply chain and in particular the impact of the large retail chains&39 bargaining power, as well as of the successful introduction of their own brands socalled private labels. large retailers would allegedly unilaterally and retroactively change contractual prices and put pressure on suppliers to, e.g., bear the cost of unsold goods and promotion campaigns. the result would be less money for suppliers to invest in new products, thereby precluding choice and innovation for consumers.one of the main conclusions of the study is that in member states with moderately concentrated retail markets choice and innovation do not seem to be affected by the bargaining power of retailers over suppliers. another finding is that while choice in shops has been progressively increasing since 2004, the economic crisis was an important factor leading to decrease in innovations since 2008.the commission has invited stakeholders to submit views and comments on the study results to competffood@ec.europa.eu, preferably before 30 january 2015.methodologythe study covers both choice and innovation in the food retail market. choice is identified as food choice the product assortment on retail shelves and shop choice the number of shops to which a consumer has access within a normal distance. innovation refers only to product innovation, assessed both with reference to the number and the types of innovation new product, extension, packaging, etc.some of the key potential drivers of choice and innovation specified areconcentration of retailers and of suppliers at nationallocal levelmeasure of imbalance between retailers and suppliersshop type and size, as well as new shop opening in the areasocioeconomic characteristics gdp per capita, unemploymentprivate label share and product category turnoverregion member states characteristics access to finance, legal environment.the study employs quantitative assessment of choice and innovation at a local level across 23 product categories and 343 shops in nine member states located in 105 representative consumer shopping areas. the three shop types analysed &ndash hyper markets, supermarkets and discount stores &ndash are regarded as making up "modern retail". at national level the evolution and concentration of the market was measured in fourteen member states in the period between 2004 and 2012. at local level however, for reasons of scarcity of information, the sample was limited to four or six member states.evolution in terms of choice, innovation and concentrationafter the 2008 economic crisis seeking lower prices has become a key priority for eu consumers. other trends impacting the european grocery retail market are changes in household composition, aging population and increased interest in new health issues. as a consequence certain product categories have grown, such as fresh products, organic food, glutenfree products. a number of innovations are also related to the desire for more convenient products e.g., readily prepared meals.in the period 20042012 discount shops experienced the strongest growth 81 increase in sales areas between 2000 and 2011, followed by hypermarkets 46 and supermarkets 26. generally, choice available to consumers increasedchoice in alternative products as a whole increased in average by 5.1 per year, the annual growth rate being 7.9 before the crisis an only 2.4 since 2008. discountersregistered the strongest growth.the variety of product sizes also increased but differed considerably across the product categories.the number of brand suppliers increased, with variations across shopping areas, product categories and shop type.choice in the number of shops in a consumer&39s shopping area increased on average by 1.6 each year.importantly, the number of innovations in the postcrisis period actually decreasedthe number of innovations increasedon average by 3.8over 20062008 but fell over 20082010 1.2 and even more significantly over 20102012 5.3. the share of innovations in the total number of products decreased steadily as of 2006. discount stores and hypermarkets were growing before 2008 in terms of innovations, whereas only discount stores continued the trend after the crisis.types of innovation changed as of 2006, with innovations on new packaging becoming considerably more common over time in most member states 30 of total innovations in 2012 compared to approximately 6 in 2004. this comes at the expense of the shares of new varieties and range extensions.concentration levels of retailers and suppliers varied across member states, product category and level of analysis local or nationala clear trend towards greater concentration of retailers was observed as a whole both modern retail and smaller stores.concentration of brand suppliers generally increased and more so during the precrisis period.the analysis of the balance between suppliers and modern retailers, measured at national level and by product category, showed that overall situations in favour of retailers are matched by those in favour of suppliers.conclusions on the factors driving choiceeconomic prosperity and product category turnover are favourable factors for choice, in addition to the shop types and size whose impact on choice is obvious. thus, drivers of choice were found to be gdp per capita of the region, national turnover in the product category, certain shop characteristics format, floorspace and presence of a new shop opening in the local area. hypermarkets were found to offer the most choice and discounters the least.econometric analyses found, at least for the countries sampled, very little evidence that the concentration of modern retailers had been an economic driver of choice.the impact of suppliers&39 concentration was found to be negligible.there was very little evidence that the measure of imbalance between modern retailers and suppliers had an impact on choice.the impact of private labels on the evolution of choice was found to be positive but small. up to a moderate level, it is associated with slightly more choice, but a higher share of private labels may result in less product variety.conclusions on the factors driving innovationthe main drivers for innovationwere found to be the level of employment of the shop&39s region, measure of retailers&39 business expectations, the national turnover in the product category, shop characteristics and a new shop opening.the impact of shop type and size was obvious. the impact of being a discounter, relative to being a hypermarket, was greater for innovation than for choice, suggesting that the narrower range offered by discounters tended to focus on less innovative products.some general economic drivers have had strong impact on innovation, such as the rate of unemployment in the region.some evidence was found that greater concentration among modern retailers at a local level was associated with less innovation.greater concentration among suppliers at procurement level was associated with less innovation.a larger imbalance away from suppliers and towards modern retailerswas generally found to be associated with more innovation.little evidence was found that a larger share of private labels curbed innovation, at least up to a certain level.the economic importance of the drivers was generally larger for innovation than for choice, in particular for new packaging innovations.overall considerationscommenting on the study, alexander italianer, the directorgeneral for competition, summarised the effects of these developments for competition. he underlined the importance of the economic environment and the positive influence of new shop openings. however, "if a main local operator purchases shops in an area where concentrations are already high, then this will probably not stimulate choice and innovation" and will vindicate intervention by competition authorities in merger cases.concerning concentration and the resulting imbalances in bargaining power, whereas in some product categories the retail sector is much more concentrated than the supply side, the inverse situation also exists. crucially, mr. italianer noted that "if a retailer twists the arm of a supplier in individual bilateral negotiations, then he may well be in the wrong, but it falls beyond the scope of competition enforcement". contract law and fair trading laws may be better placed to address situations of superior bargaining power. if imbalances in favour of retailers do not seem to have a negative impact on choice and innovation in moderately concentrated retail markets, further research is needed for the rest.despite the fact that in many member states private labels represent more than 25 of the modern retail food sales, it seems that private labels do not hamper choice and innovation. at least if they do not obtain a majority share in a product category.national competition authoritiesa number of ncas have initiated investigations in the sector, such as the danish and spanish ncas in 2011, the belgian and finnish ones in 2012, the italian authority in 2013 and the german one in 2014. they have focussed on several problemsbuying alliances, where retailers join forces in order to gain better purchasing conditions. the concern is that if competition between members is reduced, they will have fewer incentives to pass on benefits to the consumers.negotiations on prices, whereby under a kind of "most favoured nation" clause a retailer agrees to sell a supplier&39s product at a certain price, if the supplier convinces other retailers to do the same. a 2014 report released by the german competition authority suggested that these practices may facilitate collusion between brand manufacturers and retailers, since interbrand competition decreases.very concentrated wholesale markets, where retailers and suppliers could, in the words of mr. italianer, "end up colluding unintentionally, in networks of parallel agreements or parallel behaviour".conclusionsthe main conclusions on the evolution of modern retail are thatconcentration of retailers has increased in almost all member statesmodern retail has expanded, covering 5090 of total food salesthe top five retailers in many member states cover more than 80 of the modern retail segmentbuying alliances have increased importance for retailers on national or international levelprivate labels have become a great success.against this background, however, mr. italianer highlighted that concentration in the modern retail sector does not always increase national markets are in constant movement, market shares change quickly and new retailers enter the market. retail concentration may also be balanced out by other factors, such as consolidation of brand manufacturers.the content of this article is intended to provide a general guide to the subject matter. specialist advice should be sought about your specific circumstances.source httpwww.mondaq.comx354260antitrustcompetitioneuropeancommissionstudyontheec…
