Home / World Economy / World Economy News / Consumer goods firms’ pricing woes may spread beyond France

Consumer goods firms’ pricing woes may spread beyond France

nsumer goods firms like Nestle, Lindt and Unilever (LON:) may face increased pressure across Europe to cut prices after being singled out by French retailers and politicians, industry experts say.

Ahead of contract talks due to start by next month, supermarket chain Carrefour (EPA:) has slapped price warnings on products to pressure top consumer goods suppliers including Nestle, PepsiCo (NASDAQ:) and Unilever to reduce inflation.

France is a crucial country for consumer goods companies, having long outstripped Germany, Italy, Spain and others as the European Union’s biggest market for groceries by supermarket revenues, according to research firm IBISWorld. The French government is considering bringing forward annual price negotiations between food producers and supermarkets, and aims to have secured price cuts by mid-January.

Its actions could encourage other countries within the EU to follow suit, industry experts say. Retailers’ bargaining positions are also strengthened by international alliances with each other that increase their clout with suppliers.

That means consumer groups will face pressure to rein back prices across the European Union.

“It’s not only about the impact on the French market – it’s about the potential ripple effect,” said Laurent Thoumine, Europe lead for consultancy Accenture (NYSE:)’s retail industry practice.

Thoumine expects price negotiations in France to be the toughest the industry has faced for a decade.

“There are some brands that are untouchable – you cannot remove those brands from your shelves,” Thoumine said, naming Ferrero’s Nutella, Pernod Ricard (EPA:)’s Ricard aperitif and Coca-Cola (NYSE:)’s sodas as particularly strong.

But if a product is not “essential” talks will be difficult, he added, because they can be replaced easily with private label alternatives.

French grocer Systeme U and Italy’s Esselunga are both part of Epic Partners, one of several European international purchasing groups. Germany’s Edeka and Switzerland’s Migros are also reported to be part of the alliance.

Because these supermarkets are in different countries and do not compete with one another, they often combine forces to negotiate with consumer goods makers.

That has prompted accusations of collusion, which retailers deny.

“We buy as a group, not to evade any law but in order to have sufficient clout against manufacturers,” Philippe Michaud, co-president of supermarket group E. Leclerc, told French lawmakers on Wednesday. E. Leclerc is part of Eurelec, another buying alliance.

Netherlands-based supermarket group Ahold Delhaize, which belongs to the Coopernic grouping, said: “Retail alliances contribute to establishing a truly open, single European market and ensuring the fairest prices possible for consumers.”

Colruyt, part of the AgeCore buying alliance, said the single market in Europe “risks being eroded if we start imposing rules in every country on how and when to negotiate”.

Both companies pointed to the European Commission’s decision in July to close an antitrust investigation into AgeCore and Coopernic.

The Commission at the time said retailers exert a higher bargaining power negotiating through the buying alliances, allowing them to match or undercut competitors’ pricing.

In June, French Finance Minister Bruno Le Maire urged 75 consumer companies to cut prices. After a new round of meetings last month, Le Maire called out Unilever, Nestle and PepsiCo for not “cooperating.”

“I don’t think this is just localised to France,” Richard Saldanha, a portfolio manager at Britain’s Aviva (LON:) Investors, said. “There is pressure and I think governments are starting to look at this more closely.”

Nestle and Unilever did not comment, while Lindt did not immediately respond to a request for comment.

Systeme U and Esselunga confirmed they are part of Epic Partners. Ahold confirmed it is part of Coopernic and Colruyt that it is part of AgeCore.

Edeka and Migros did not reply to a request for comment.

Paris is not alone in Europe in its eagerness to bring down the price of food and other staples.

Reuters reported in July that Italy’s government is trying to broker a deal with supermarkets and producers to control prices of essential consumer goods in a measure that would be implemented in the final three months of this year.

The Greek government said on Wednesday that big supermarkets there will need to share with authorities their price lists for basic foods.

Consumer goods makers have for more than two years grappled with sky-rocketing input, supply chain and labour costs that they have either absorbed – taking a hit to margins – or passed on to retailers. Those cost pressures are easing off now, however, and investors have voiced concerns that raising prices will alienate shoppers and hit sales volumes.

“What’s going on in France is interesting as you’re starting to see higher costs rollover,” Saldanha said. “The key for us from an investor standpoint is trying to understand: are these price increases justified?”
Source: Reuters

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping