Threats to free market in the Spanish Retail sector

It isn’t easy to hit the ground running with a product that is as accessible and necessary for everyone as food is. Opinions, accusations, and contradicting messages are frequent and cover a number of different topics. When quantitative analyses are performed, such as those conducted by communications departments, where headlines are quantified and feelings about them are analyzed, readers can begin to think that ours is an industry of near-criminals. When prices increase, it is the fault of the distribution industry; when prices decrease, distribution is selling at a loss. Doesn’t everyone understand?

These and other nonsensical arguments make it necessary to take these articles with a grain of salt. Some variables are constant and some examples occur day after day.

In the last few months, we have seen accusations about selling at a loss, whether aimed at the distribution industry or directly at DIA, in the media; three accusations have materialized into 116 points of impact in the media. If we take the total of all points of impact throughout the year on this topic, you might conclude that we are not a company but rather an NGO. The question is really not what we sell at a loss, but what we actually earn on some of our sales. This is certainly an industry with very tight margins and complex management processes, and the importance of controlling costs is crucial, but we can clearly see that if everything is sold at a loss, the company can’t record any earnings.

Beyond this simplified reasoning, a few days ago, we read the conclusion report of General Counsel Mr. Henrik Saugmandsgaard on issue C-295/1, in which he concludes that a standard such as Article 14 of the Organic Retail Commerce Act (Ley Orgánica de Comercio Minorista, or LOCM), which generally prohibits sales at a loss and does not specify a certain type of analysis to determine whether the behavior in question can be considered unfair, is contrary to European Union law. The report is certainly not binding, but as indicated above, persecution of this kind is happening on a daily basis without anyone to question it.

DIA purchases from 1,528 different providers in Spain, of which 1,382 are SMEs and 146 are multinational companies. SME billing totals EUR 2.164 billion, while billing to large companies totals EUR 2.067 billion. In light of this data, it goes without saying that there is a series of companies that make up a significant portion of the most-consumed food products that have market shares well over 50% in some product families.

Source: Oxfam

In order to go up against the negotiating power of these large companies, it is time for the European distribution industry to begin forming commercial partnerships among operators. DIA has signed commercial agreements in Spain with Eroski, in Portugal with Intermarché, and in France with Casino, in order to allow the resulting increased efficiency to reverberate out to consumers. With the exception of Spain, none of the countries in which these partnerships have been formed, where partnerships exist among other operators, have resulted in any roadblocks.

In Spain, however, DIA and Eroski have a major sanctioning case in progress due to implementation of this partnership, which is the result of a complaint by the companies that represent the main providers of food worldwide. This is not the place to go into details, but for more information see below:

The Swiss company Nestlé group’s sales rose by 0.4% in the first quarter over the same period in 2016, reaching EUR 19.587 billion). Nestle increase their sales by 0.4% in the first quarter

Dutch-British Unilever, the fourth largest consumer goods company in the world, released its first quarter numbers yesterday, reporting EUR 13.319 billion.
Unilever invoices 6,1% more until March and rises 12% the dividend

In the first quarter of 2017, Dutch company Heineken recorded net income of EUR 293 million, compared to EUR 265 million in the same period the previous year, representing an increase of 10.5%. Heineken’s benefit grows 10,5% in the first quarter

The American company Pepsico beat the market in the second quarter due to price increases. The company reported revenue of EUR 15.7 billion in the second quarter, with a net income of 2.11 billionPepsiCo win 41,5% more in the first quarter

On this point, we wish to mention that Spanish company DIA Group’s revenue in the first quarter of this year was EUR 2.096 billion, with a net income of EUR 39 million, while its annual revenue in 2016 the five countries where it operates was EUR 10.550 billion, with a net income of EUR 258.6 million. As a result, size and negotiating power with many of the previously mentioned providers seem, to say the least, to be unequal, and the need for a partner that will try to improve negotiating conditions is ever more logical. Why is this such a problem for Spain?

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